8 mins
Content
UK: High inflation continues to weigh on growth
Europe: A mixed quarter as inflation edges higher
US: Strong growth supports markets despite rising inflation
Asia: Asian markets lead, though trends vary
How this affects your investments
Looking ahead
Summary
In the third quarter, global markets generally moved forward, though performance differed across regions. The US economy remained strong, Asia outpaced other regions, while Europe faced challenges. Inflation stayed a theme in many areas, underlining why a balanced approach and diversification remain important. For investors, these differences highlight the value of spreading investments across markets – helping to manage risk while capturing global opportunities.
UK: High inflation continues to weigh on growth
The UK economy struggled in the third quarter, with inflation still above target levels and growth remaining subdued.
The latest inflation figures show a rate of 3.8%, considerably above the 2% target, and some costs are rising much faster. For example, food prices increased by 5.1% in the 12 months to August1. In response, the Bank of England (BoE) kept the base rate unchanged at 4% in its September meeting2.
Economic growth was slow, which when combined with high inflation, creates a challenging climate for consumers. GDP grew by 0.2% in the three months to July 2025, down from 0.3% in June and 0.6% in May3.
The UK’s market performance was solid, as the FTSE All-Share index (which tracks 900 of the largest UK companies) rose 6.9% in the third quarter. Although the domestic economy faces challenges, a stronger global economy, combined with a weaker pound, likely supported these returns4.
Europe: A mixed quarter as inflation edges higher
Europe also faced a challenging quarter, with inflation edging higher and growth proving sluggish across several countries.
Inflation in the Euro area rose above target levels to 2.2% in September, up from 2% over the previous three months. The rise was driven largely by a slower decline in energy costs and higher prices for services5.
Economic growth was also sluggish as GDP expanded by just 0.1% in the three months to June. Spain led with a 0.7% gain, Portugal followed with 0.6%, and France posted a modest 0.3%. Germany and Italy, the eurozone’s largest and third-largest economies, both contracted by 0.1%6.
A poor market performance rounded off a difficult quarter for Europe. The MSCI Europe ex-UK Index (a measure of large and mid-sized European companies) was the weakest global performer in the third quarter, returning just 2.8%. German equities posted losses, while French stocks outperformed despite ongoing political instability7.
US: Strong growth supports markets despite rising inflation
The US continued to show resilience, with economic growth and market performance remaining strong, even as inflation rose.
Inflation increased to 2.9% in August 2025, the highest since January, after holding at 2.7% in the previous two months8.
Despite this, the Federal Reserve (Fed) cut interest rates in September to a range of 4% to 4.25%9. The lowering of the Fed rate helped boost the S&P 500 (an index of 500 leading US companies), which returned 8.1% over the quarter10.
There was further positive news for the US, as economic growth in the second quarter was revised up from 3.3% to 3.8%, marking the strongest performance since the third quarter of 202311.
Asia: Asian markets lead, though trends vary
Asia delivered some of the strongest market gains this quarter, though inflation trends varied across the region.
In Japan, inflation eased for the fourth consecutive month to 2.7% in August, down from 3.1% in the previous month, marking the lowest reading since October 202412.
China experienced further deflation, as prices fell by 0.4% in August, the sharpest decline since February13.
However, it wasn’t all bad news for China, as easing trade tensions with the US helped drive a strong market performance. The MSCI Asia ex-Japan index (which covers major Asian markets outside Japan) surged 11.1% and was the best performer in the third quarter. It remains the second strongest in the year-to-date, with 27.5% growth14.
Japan’s TOPIX index (which tracks a broad range of Japanese companies) was close behind for the quarter, rising 11%14.
How this affects your investments
The different performances across regions are a reminder of why diversification matters. A well-spread portfolio helps smooth out the ups and downs, protecting against local setbacks while capturing global opportunities. Above all, it reinforces the value of keeping a long-term perspective.
Looking ahead
Events such as the UK Autumn Budget may create short-term market movements, while political and economic developments in Europe will continue to shape investor confidence. Yet the principle remains the same: staying invested for the long term, with a well-diversified portfolio, is the best way to navigate uncertainty and stay on track with your goals.
If you’d like to discuss what these themes mean for your own portfolio, your Succession adviser will be happy to guide you.
References
117.09.2025 UK inflation rate stays at 3.8% but food costs continue to rise steeply BBC 203.10.2025 Interest rates and Bank Rate Bank of England 312.09.2025 GDP monthly estimate, UK: July 2025 ONS 401.10.2025 Review of markets over August 2025 JP Morgan 503.10.2025 Euro Area Inflation Rate Trading Economics 615.08.2025 Growth fades in Europe: Is the recovery already running out of steam? Euronews 701.10.2025 Review of markets over August 2025 JP Morgan 803.10.2025 United States Inflation Rate Trading Economics 917.09.2025 Federal Reserve cuts US interest rates for first time since December The Guardian 1003.10.2025 Review of markets over the third quarter of 2025 JP Morgan 1103.10.2025 United States GDP Growth Rate Trading Economics 1217.09.2025 Japan Inflation Rate Trading Economics 1317.09.2025 China Inflation Rate Trading Economics 1401.10.2025 Review of markets over August 2025 JP Morgan
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