Market Commentary 20th May 2025 – from Naigil Johnson

The British economy grew by 0.7% in Q1 of 2025, up from 0.1% in Q4 and above expectations of 0.6%, marking the strongest quarterly growth in three quarters, according to preliminary data. The services sector was the main driver, led by administrative and support services and retail trade. On a year-on-year basis, Gross Domestic Product (GDP) expanded by 1.3%.

The UK’s unemployment rate rose slightly to 4.5% between January and March 2025, up from 4.4%, where it had held steady for four consecutive periods. This increase, in line with market expectations, marks the highest jobless rate since the three months ending in August 2021.

The Eurozone economy expanded by 1.2% year-on-year in Q1 of 2025, in line with both the previous quarter’s growth and the initial estimate. Among the region’s largest economies, Germany recorded a second consecutive quarterly contraction of 0.2%. Meanwhile, France maintained a steady growth rate of 0.8%, and Italy saw a slight pickup in momentum, with growth edging up to 0.6% from 0.5% previously. In Switzerland, the economy grew by 0.7% in Q1 of 2025, the strongest pace since early 2023, driven by robust services and positive industrial activity.

Germany’s ZEW Indicator of Economic Sentiment soared by 39.2 points to 25.2 in May 2025, rebounding sharply from April’s near two-year low of -14.0 and significantly exceeding market expectations of 11.9. The sharp uptick reflects growing optimism for the next six months, fuelled by the formation of a new federal government, progress in resolving tariff disputes, and signs of stabilising inflation

France’s annual inflation rate held steady at 0.8% in April 2025 for the third consecutive month, its lowest level since February 2021. Whilst inflation remained steady, the unemployment rate edged up to 7.4% in Q1 of 2025, from 7.3% previously, as the number of unemployed people rose by 64,000 to 2.4 million.

Republicans in the US House of Representatives blocked President Donald Trump’s sweeping tax bill on Friday over concerns it did not do enough to cut spending, hours before the major rating agency, Moody’s, stripped the federal government of its once top-tier credit rating. A pass to the bill would have extended the 2017 tax cuts that were the president’s signature first-term legislative achievement, a move that analysts say will add trillions to the federal government’s $36.2 trillion in debt.

The annual inflation rate in the US slowed to 2.3% in April 2025, marking its lowest level since February 2021. This is down from 2.4% in March and slightly below the forecasted 2.4%. Meanwhile, the annual core consumer price inflation rate, which excludes volatile items such as food and energy, remained steady at 2.8% in April 2025, matching market expectations.

Whilst the inflation forecasts were positive, the economic data illustrated a sharp decline in consumer sentiment for May, as Americans grew increasingly pessimistic about the inflation outlook. One-year inflation expectations surged to 7.8%, marking the highest level since 1981. According to the latest University of Michigan consumer sentiment survey released on Friday, the index fell to 50.8, its second-lowest reading on record and down from 52.2 in April.

Japan’s economy contracted in the first quarter of 2025, with GDP shrinking by 0.2% compared to last quarter. This marked the first quarterly decline in a year and was worse than market expectations of a 0.1% fall. The downturn followed a 0.6% expansion in Q4 of 2024.

In China, retail sales rose by 5.1% year-on-year in April 2025, easing from March’s 5.9% increase, the highest in over a year and falling short of market expectations of 5.5%. It appeared that households remained cautious amid ongoing economic uncertainty, slow income growth, and rising concerns over the impact of higher US tariffs.

GBP / EUR – Current 1.1898 Previous 1.1825

The Pound fell by 0.17% against the Dollar last week. The Dollar strengthened against most currencies, for its fourth consecutive weekly gain. Against the Euro, the pound increased by 0.62%.