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15 Dec 2025 | 3 minutes to read
The UK’s economy shrank by -0.1% in October according to data released last week by the Office for National Statistics (ONS). Monthly data can be volatile but over three months to October the economy also contracted -0.1%, meaning it has only grown in one of the last seven months. Services sectors saw no growth, while production output slid by -0.5% and construction by -0.3%. The falls are consistent with surveys reporting abnormally high uncertainty around the Autumn Budget which dented activity and consumer confidence. Despite being light on pro-growth measures, the Budget didn’t contain any anti-growth polices, making the case for the economy to reaccelerate modestly from here, with inflation easing and the Bank of England (BoE) improving credit conditions by lowering interest rates. A 0.25% rate cut from the BoE is all-but nailed on for 18 December. Longer-term, the picture is fragile. Annual economic growth could return to around 1.5% in 2026. Yet as a percentage of GDP, the total take-take will breach 38% from 2029-2030 onward – an all-time high. And the UK’s borrowing and debt-interest costs are punitively expensive among the G7 – a consequence of erratic policymaking eroding confidence.
The US Federal Reserve announced a 0.25% rate cut last week in its final meeting of the year – lowering the main funds rate to a range of 3.5% to 3.75%. This marks the lowest level in more than three years, as the Fed continues to support a weakening labour market.
The 9-3 split decision highlighted divisions within the committee; it was the first time in six years three policymakers had dissented. Two officials favoured no change, while one supported a larger 0.5% cut. The split underscores growing uncertainty about the US economic outlook as it absorbs the impact of tariffs, labour market disruptions linked to immigration crackdowns and government spending cuts. The Fed is also operating with limited visibility, as key price and labour data normalise following the federal government shutdown. It may be the last rate cut for a while: at the post-meeting press conference, Chair Jerome Powell said further cuts will be tougher to justify. “We are well positioned to wait to see how the economy evolves,” he said.
The rate cut supported US stock indices, with the S&P 500 and Dow Jones Industrial Average both initially closing at record highs on the news. US Treasury performance was mixed across maturities: short-term yields generally slid lower after the Fed’s announcement, with the 10-year Treasury yield below 4.2%, while longer-term yields ended the week higher.
China’s trade surplus hit $1trn in November – its highest level ever – with one month of the year still to go. The imbalance is fast-becoming a headache for policymakers in Beijing keen to revive domestic demand and reorient its export-focused economy. Inflation there hit just 0.7% in November, contributing to currency depreciation and strong exports amidst general investor malaise and weak consumer confidence – typified by a property market slump which has lasted for years. On the one hand, it might appear that the trade surplus exemplifies China’s success at re-routing previously US-bound exports to other markets in the face of Washington’s tariffs. Certainly, headline GDP growth has proven resilient during the onslaught of a new trade war. But on the other, China’s Politburo has hinted at weakness, committing to boosting domestic demand and accelerating innovative technologies next year via a proactive mix of fiscal and monetary stimulus, which might help wean it off being so reliant on selling goods overseas.
The bigger geopolitical jigsaw is complicated. President Trump’s team released its National Security Strategy last week, apparently downgrading China from a strategic and economic threat to a mere economic one. That said, Trump’s tariffs – which may soon be ruled illegal in their current form – is forcing some countries to align their interests or face punitive actions. Apparently between such a rock-and-a-hard-place, Mexico’s Senate last week approved tariff hikes of up to 50% on some Chinese imports from next year. That China can successfully navigate domestic and international tensions matters deeply to the global economy.
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