Content

• UK: Bank of England cuts the base rate despite inflation rising  

• Europe: Inflation holds steady, but markets lag  

• US: Inflation continues to rise, and economic growth rebounds in the second quarter 

• Asia: Markets perform well, while inflation remains high in Japan and low in China 

• How this affects your investments 

• Looking ahead

Summary

Global markets mostly posted gains in July, led by strong performances in the UK and Asia, while European markets lagged. Other economic indicators across the month were more mixed, including rising inflation in the UK alongside a cut in the base rate, and a return to growth in the US after the economy contracted in the first quarter. For UK investors, the combination of strong market gains and weak economic data highlights the importance of investing to keep pace with inflation and support wealth growth, even in challenging conditions.

UK: Bank of England cuts the base rate despite inflation rising

In the UK, inflation rose to 3.6% in the 12 months to June, marking its highest level since January 2024. The increase was largely driven by higher prices for essentials such as food and clothing, along with rising travel and fuel costs¹. 

Despite the uptick in inflation, the Bank of England (BoE) cut the base rate of interest from 4.25% to 4% at its latest meeting in August. While rate cuts typically follow signs of easing inflation, the move reflected the BoE’s concerns over sluggish economic growth. The BoE has warned that inflation could reach 4% in September, but remains confident it will decline after that². 

Indeed, the BoE’s concerns are reflected in the latest data, which shows that monthly real GDP contracted 0.1% in May 2025, following a 0.3% drop in April³.  

You can read more about the BoE’s decision to cut the base rate in our recent article. 

Despite the relatively poor economic readings, UK markets performed strongly. The FTSE All-Share Index, which measures the share price performance of the 900 largest companies on the London Stock Exchange, rose 4% in July, making it the best performer of the month, with the energy and materials sectors posting particularly strong gains⁴.  

Europe: Inflation holds steady, but markets lag

Eurozone inflation held steady at 2% in the year to July 2025, unchanged from June, marking the second consecutive month that inflation has aligned with the European Central Bank’s (ECB) 2% target⁵. This indicates a stable economic environment and suggests the ECB's monetary policy is effectively managing inflation. 

The Eurozone economy grew by 0.1% in the second quarter (Q2) of 2025, down from 0.6% growth in the first quarter (Q1). The slowdown reflects the caution among businesses and households as they balance easing inflation against trade uncertainties linked to US tariffs⁶. 

The MSCI Europe ex-UK an investment index that tracks the performance of large and mid-cap stocks in developed European countries, excluding the UK, declined by 0.2% in July. The poor performance was in part due to warnings from continental technology firms about the impact of US trade policies on their future growth prospects⁷. 

US: Inflation continues to rise, and economic growth rebounds in the second quarter

In June, US inflation rose for the second consecutive month to 2.7% from 2.4% in May, marking the highest level since February⁸. 

JP Morgan now expects the Federal Reserve (Fed) to cut interest rates by 0.25% at its September meeting, having previously forecast a single 0.25% cut in December⁹. 

The US economy grew at an annualised rate of 3% in Q2 of 2025, rebounding strongly from a 0.5% contraction in Q1, according to early estimates. The growth was largely driven by a sharp drop in imports, following a surge in Q1 as consumers rushed to stockpile goods ahead of anticipated price increases from the tariff announcements¹⁰. 

The S&P 500, a stock market index tracking the stock performance of 500 leading companies listed on stock exchanges in the United States, rose 2.2% in July. The “Magnificent Seven” which refers to seven large technology companies that have significantly impacted market performance: Apple, Amazon, Alphabet (Google), Meta (Facebook), Microsoft, Nvidia, and Tesla, continued to deliver strong growth¹¹. These companies are known for their innovation, strong financial performance, and substantial market capitalisation. They play a major role in driving growth in major indexes like the S&P 500. 

Asia: Asian markets perform well, while inflation remains high in Japan and low in China

China’s year-on-year inflation was down to 0% in July 2025, following a 0.1% increase in June. Although inflation remains flat, this marks an improvement compared to the deflationary period earlier in the year¹². 

In Japan, the annual inflation rate eased slightly to 3.3% in June 2025 from 3.5% in May, hitting its lowest level since November 2024. This was partly driven by slower increases in electricity and gas prices¹³. 

Japan’s TOPIX index, which tracks companies listed on the Tokyo Stock Exchange, rose 3.2% in July. However, it remains the weakest performer in the year-to-date with returns of 7.1%. 

The MSCI Asia ex-Japan index, which represents major Asian markets excluding Japan, gained 2.6% in July and stands as the second-strongest global performer this year, with a year-to-date gain of 17.8%¹⁴.

How This Affects Your Investments

With inflation in the UK continuing to rise above optimal levels and the BoE cutting interest rates, cash is unlikely to keep pace or preserve its value in real terms. You can read more on this in our recent article ‘Should I stay invested or move to cash?’ Most major markets delivered positive returns in July, highlighting how investing can provide opportunities for growth and help protect purchasing power, even in a challenging economic environment.  .

Looking Ahead

The months ahead are likely to bring more mixed signals for investors. With inflation rising in the UK and economic growth remaining slow, we may enter a period of “stagflation” characterised by slow economic growth, high unemployment, and high inflation, all occurring simultaneously. 

Yet, despite recent significant setbacks, global markets have shown resilience and look likely to continue performing positively across the year.  

As always, maintaining a long-term view and spreading investments across different regions, sectors, 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. 

¹16.07.2025 UK inflation at highest for almost a year and a half BBC ²07.08.2025 Bank of England cuts interest rates as it warns food costs could push inflation to 4% the Guardian ³11.07.2025 GDP monthly estimate, UK: May 2025 Office for National Statistics ⁴01.08.2025 Review of markets over July 2025 JP Morgan ⁵11.08.2025 Euro Area Inflation Rate Trading Economics ⁶11.08.2025 Euro Area GDP Growth Rate Trading Economics ⁷01.08.2025 Review of markets over July 2025 JP Morgan ⁸11.08.2025 United States Inflation Rate Trading Economics ⁹08.08.2025 JP Morgan brings forward Fed rate cut forecast to September Reuters ¹⁰11.08.2025 United States GDP Growth Rate Trading Economics ¹¹01.08.2025 Review of markets over July 2025 JP Morgan ¹²11.08.2025 China Inflation Rate Trading Economics ¹³11.08.2025 Japan Inflation Rate Trading Economics ¹⁴01.08.2025 Review of markets over July 2025 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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