Global markets continued to make steady progress through October, with stock market indexes around the world reaching new record highs. Investors have been willing to look past some mixed economic data, encouraged by signs that inflation is easing and expectations that interest rates could start to fall in the coming months.

UK policy

The UK government is preparing for its Autumn Budget, set for late November. Chancellor Reeves faces a tricky balancing act in addressing the stretched public finances that have seen government borrowing reach £99.8bn in the first six months of the fiscal year.

This is the second-highest on record since monthly data began in 1993, exceeded only by pandemic levels in 2020. Nearly 50% of monthly borrowing is now absorbed by debt interest payments, driven by inflation and elevated gilt yields.

Although tax increases are widely viewed as inevitable to meet fiscal rules, the Chancellor is keen to avoid the negative market reactions witnessed following last year’s October Budget, where gilt yields rose in the months following significant tax and spending announcements.

Proposals expected include measures to enhance fiscal sustainability, reduce the deficit and create a “fairer” tax system. The government also faces ongoing geopolitical and trade-related uncertainties, which complicate this fiscal strategy.

The UK economy

Economic data released throughout October paints a picture of modest but stable UK growth, despite persistent challenges.

The Office for National Statistics (ONS) reported the UK economy grew by 0.1% in August, while retail sales volumes rose 0.5% in September after a 0.6% increase in August, signalling sustained consumer spending.

Despite this, weekly and monthly retail footfall trends are softening, with decreases of 2-4%, reflecting mixed sentiment among shoppers.

The Consumer Prices Index (CPI) inflation remained steady at 3.8% in September, unchanged from August, offering some hope for disinflation. Still, inflation remains well above the Eurozone average and the Bank of England’s 2% target.

The Monetary Policy Committee held interest rates steady at 4.0% in September after cutting them several times since August 2024, citing tensions between inflation risks and economic growth concerns.

Labour market data indicate some softness. Employment rose by approximately 473,000 to 34.22 million in the year to June-August, with an employment rate of 75.1%, but unemployment also increased by around 297,000 to 1.74 million, pushing the rate to 4.8%.

Real wages excluding bonuses grew 1.2% above inflation, suggesting a modest recovery in household incomes. Meanwhile, productivity remains a persistent weakness, falling 0.6% in Q2 2025 versus the previous quarter, constraining longer-term growth prospects.

Public finances remain a challenge. Public sector net debt reached 95.3% of GDP by the end of September, slightly up from the previous year, and the UK trade deficit widened to £9.2 billion in the three months to August.

The current account deficit also grew, reflecting external vulnerabilities. Households have deleveraged somewhat, with debt now at the lowest level since 2007 relative to disposable income, and house prices increased year-on-year as of August, reflecting moderate property market strength.

With all these factors – persistent inflation, subdued productivity growth, fragile consumer confidence and stretched public finances – the upcoming Autumn Budget will be pivotal in shaping UK fiscal and economic policy for the remainder of 2025 and beyond.

The UK market

The FTSE 100 index capped another strong month by reaching record highs in late October, pushing closer to the significant 10,000 milestone.

The index’s gains since July 2025 reflect solid investor confidence in UK large caps, particularly multinational companies with significant overseas revenue streams that benefit from weaker sterling valuation relative to peers.

Sectors showing strength include mining, supported by high gold prices and healthcare, buoyed by Pfizer’s recent US government contract that alleviated pharmaceutical sector uncertainties.

Despite these positives, business activity surveys showed a five-month low in confidence about investment and spending, likely tied to uncertainties around tax changes ahead of the Budget.

Nevertheless, UK equities’ relative valuation discount compared to other major markets remains a key attraction for global investors, underpinning market resilience amid domestic economic headwinds.

The Global Outlook

Global equity markets broadly delivered strong returns in October, with multiple indices reaching fresh highs. In the United States, despite a prolonged government shutdown and delays in economic data releases, equities held steady at record highs.

Concerns about the private credit market followed the collapses of First Brands and Tricolor, causing brief volatility that quickly abated.

In Europe, political instability continues in France with Prime Minister Sébastien Lecornu’s return following a lost vote of no confidence. Fiscal pressures remain acute with debt at 114% of GDP and a budget deficit nearing 6%.

Asia featured strong equity performances: South Korea’s KOSPI index reached new highs amid corporate governance reforms aimed at improving returns on equity.

In contrast, Japan’s equity market surged following the historic election of its first female prime minister, who inspires hopes of renewed growth momentum.

Commodity markets showed mixed signals. Gold prices retreated from record highs as investors booked profits and trade tensions between the US and China eased.

Oil prices held firm, supported by US sanctions targeting key Russian oil firms amid ongoing efforts to influence the war in Ukraine.

This expanded text now balances depth and breadth across all sections while maintaining accessibility and structure appropriate for a UK financial market update. Let me know if you want it refined further or formatted for a particular medium.

The content in this article was correct on 05/11/2025.

The value of your investment can go down as well as up and you may get back less than the amount invested

You should not rely on this article to make important financial decisions. Teachers Financial Planning offers advice on savings, pensions, investments, mortgages, protection equity release and estate planning for teachers and non-teachers.

Please use the contact form below to arrange an informal chat with an advisor and see how we can help you.