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Investing
WeekWatch
20 October 2025
7 minutes
Stock Take
UK outlook – is the economic picture improving?
The UK is forecast to be one of the fastest growing economies in the G7, after the International Monetary Fund’s (IMF) latest global outlook provided a rare positive headline. The IMF upgraded the UK growth outlook (GDP) for 2025 and 2026. But was it worth the wait?
A closer look shows it’s thin gruel for the UK. Domestic annual real GDP growth (i.e accounting for inflation) of 1.3% in 2025 and 2026 is only slightly ahead that of the eurozone. It also trails the US GDP outlook of 1.8% and 2%.
In less welcome news, the IMF also sees the UK topping the G7 table for inflation. There are multiple reasons for this. UK wage growth accelerated sharply following the ratification of Brexit and the pandemic. There are labour shortages across multiple sectors, including the NHS, social care and construction. There have been one-off adjustments to some regulated household utility bills. Meanwhile last year’s budget, which increased employers’ national insurance contributions, has added upward pressure on UK inflation.
The Office for National Statistics will this week publish data expected to show that UK inflation reached a near two-year peak of 4% in September.
The UK is vulnerable to higher wage growth relative to its peers. A reason for this is the longstanding issue of low productivity. This makes it difficult for domestic companies to offset higher wage demands or input prices by making more. This prevents them from building up a buffer before passing higher costs on to consumers. In contrast, US firms were able to absorb some of the additional costs following the introduction of new tariffs earlier this year, helping keep a lid on inflationary pressures.
The IMF’s update confirms what many commentators have been saying about the UK economy. As long as high wage pressure remains strong (and productivity growth weak), the Bank of England will be reluctant to cut interest rates. Despite this, Hetal Mehta, SJP’s chief economist believes that even though the Bank of England is focused on elevated inflation in the near-term, “continual labour market weakness might create the opportunity for a pivot later on, allowing it to cut interests rates”.
Cockroach watch in the US
US earnings season started last week and it was going so well. Investment banks led the way, producing knock-out earnings supported by an easing interest rate environment and buoyant markets.
While bank returns are considered a useful gauge of how the overall economy is performing, investment banks are more linked to financial markets. Trading desks, which buy and sell shares, bonds and other assets did well. So did wealth management as well as mergers and acquisitions (M&A). US consumers and businesses were both reported to be in a good place.
Yet by mid-week, the mood had changed. The share prices of some US regional banks (those more concerned with ‘Main St.’ rather than ‘Wall St.’) fell after some reported problem loans, some of these allegedly fraudulent. Investors were already alert to some of these issues due to the recent bankruptcies of two companies, First Brands and Tricolor Holdings.
The news led to fears of wider and potentially more systemic issues in private credit markets. This ‘contagion’ saw global markets fall as investors worried about pockets of weakness and fraud in US regional banks. This caused a sell-off in the banking sector, especially for smaller banks, on Thursday. Sentiment partially recovered but analysts will be scrutinising further sector earnings releases over the coming week.
In relation to some of the more apparent fraud in this area Jamie Dimon, CEO of JP Morgan said, “when you see one cockroach, there are probably more".
So far, many of the problems coming to light are specific to individual banks. They do not necessarily imply sector-wide issues. However, Dimon’s comments might suggest that investors should expect more of them.
The UK is forecast to be one of the fastest growing economies in the G7, after the International Monetary Fund’s (IMF) latest global outlook provided a rare positive headline. The IMF upgraded the UK growth outlook (GDP) for 2025 and 2026. But was it worth the wait?
A closer look shows it’s thin gruel for the UK. Domestic annual real GDP growth (i.e accounting for inflation) of 1.3% in 2025 and 2026 is only slightly ahead that of the eurozone. It also trails the US GDP outlook of 1.8% and 2%.
In less welcome news, the IMF also sees the UK topping the G7 table for inflation. There are multiple reasons for this. UK wage growth accelerated sharply following the ratification of Brexit and the pandemic. There are labour shortages across multiple sectors, including the NHS, social care and construction. There have been one-off adjustments to some regulated household utility bills. Meanwhile last year’s budget, which increased employers’ national insurance contributions, has added upward pressure on UK inflation.
The Office for National Statistics will this week publish data expected to show that UK inflation reached a near two-year peak of 4% in September.
The UK is vulnerable to higher wage growth relative to its peers. A reason for this is the longstanding issue of low productivity. This makes it difficult for domestic companies to offset higher wage demands or input prices by making more. This prevents them from building up a buffer before passing higher costs on to consumers. In contrast, US firms were able to absorb some of the additional costs following the introduction of new tariffs earlier this year, helping keep a lid on inflationary pressures.
The IMF’s update confirms what many commentators have been saying about the UK economy. As long as high wage pressure remains strong (and productivity growth weak), the Bank of England will be reluctant to cut interest rates. Despite this, Hetal Mehta, SJP’s chief economist believes that even though the Bank of England is focused on elevated inflation in the near-term, “continual labour market weakness might create the opportunity for a pivot later on, allowing it to cut interests rates”.
Cockroach watch in the US
US earnings season started last week and it was going so well. Investment banks led the way, producing knock-out earnings supported by an easing interest rate environment and buoyant markets.
While bank returns are considered a useful gauge of how the overall economy is performing, investment banks are more linked to financial markets. Trading desks, which buy and sell shares, bonds and other assets did well. So did wealth management as well as mergers and acquisitions (M&A). US consumers and businesses were both reported to be in a good place.
Yet by mid-week, the mood had changed. The share prices of some US regional banks (those more concerned with ‘Main St.’ rather than ‘Wall St.’) fell after some reported problem loans, some of these allegedly fraudulent. Investors were already alert to some of these issues due to the recent bankruptcies of two companies, First Brands and Tricolor Holdings.
The news led to fears of wider and potentially more systemic issues in private credit markets. This ‘contagion’ saw global markets fall as investors worried about pockets of weakness and fraud in US regional banks. This caused a sell-off in the banking sector, especially for smaller banks, on Thursday. Sentiment partially recovered but analysts will be scrutinising further sector earnings releases over the coming week.
In relation to some of the more apparent fraud in this area Jamie Dimon, CEO of JP Morgan said, “when you see one cockroach, there are probably more".
So far, many of the problems coming to light are specific to individual banks. They do not necessarily imply sector-wide issues. However, Dimon’s comments might suggest that investors should expect more of them.
Wealth Check
Beware of the rumours
After months of speculation, Chancellor Rachel Reeves has confirmed what most thought inevitable – both tax rises and spending cuts will feature prominently in the Autumn Budget.
Reeves, who needs to fill a fiscal black hole of up to £30 billion, has been quoted as saying that wealthy people should shoulder more of the burden. Yet what this will look like remains to be seen.
We set out some of the key themes coming up below. However, we would always advise waiting to see what does happen in the Budget on 26 November before making any key financial decisions. Experience shows us that making decisions based on unfounded rumours can often lead to unintended consequences.
Pensions reform
After months of speculation, Chancellor Rachel Reeves has confirmed what most thought inevitable – both tax rises and spending cuts will feature prominently in the Autumn Budget.
Reeves, who needs to fill a fiscal black hole of up to £30 billion, has been quoted as saying that wealthy people should shoulder more of the burden. Yet what this will look like remains to be seen.
We set out some of the key themes coming up below. However, we would always advise waiting to see what does happen in the Budget on 26 November before making any key financial decisions. Experience shows us that making decisions based on unfounded rumours can often lead to unintended consequences.
Pensions reform
- A potential reduction in the amount that can be withdrawn from a pension as tax-free cash.
- Possible cuts to tax relief on pension contributions or the implementation of a flat level of relief. Currently basic rate taxpayers benefit from tax relief of 20% on pension contributions. This rises to 40% for higher rate taxpayers and 45% for additional rate taxpayers.
Property taxes overhaul
- Replacing stamp duty with a property tax. Media outlets reported in August that the Treasury was considering introducing a national tax paid by owner-occupiers on properties worth more than £500,000 when they sell their home.
- Possible scrapping of council tax (although there is also speculation that new, higher council tax bands could be created).
- Applying capital gains tax to the sale of main homes above a certain value.
- Targeting landlords by applying National Insurance to rental income.
Cash ISAs
- Plans to cut the cash ISA allowance were shelved in July following a backlash. However, last week rumours resurfaced about a possible reduction, as the government looks to encourage more people to invest in equities.
Inheritance tax
- A possible extension of the period donors must live after making a substantial gift before it falls outside their estate for IHT purposes, from seven years to 10 years.
- A potential lifetime cap on the value of gifts people can make that are IHT-free.
Don’t try and predict the future
It’s hard to predict the future, but it’s highly likely that some of the current Budget rumours won’t happen. A relevant question to consider might be: how would you feel if you took an action, based on speculation of a change, which then didn’t come to pass and you found yourself in a more disadvantageous position? It is always worth trying to remain calm amid the Budget speculation and avoid making knee-jerk decisions.
The value of an investment with St. James's Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than the amount invested.
The levels and bases of taxation and reliefs from taxation can change at any time and are dependent on individual circumstances.
In The Picture
Weak UK productivity and the lingering consequences of Brexit on the supply of labour have fuelled high domestic wage growth. This goes some way to explain why the UK is expected to have the highest inflation in the G7 in 2025 and 2026.
The value of an investment with St. James's Place will be directly linked to the performance of the funds selected and the value may fall as well as rise. You may get back less than the amount invested.
The levels and bases of taxation, and reliefs from taxation, can change at any time and are generally dependent on individual circumstances.
Past performance is not indicative of future performance.
The levels and bases of taxation, and reliefs from taxation, can change at any time and are generally dependent on individual circumstances.
Past performance is not indicative of future performance.
SJP Approved 20/10/2025
