Another turbulent treat of a quarter as President Trump appears ever keener to wield unchallenged and unchecked power. The litany of events clamouring for attention
has been startling. The President’s extraordinary ‘liberation day’ pronouncements on trade and tariffs set the tone but quickly hit the buffers of some serious financial
market stress. Geo-politics has taken centre stage since with open warfare between Israel and Iran and the steady descent of Gaza into a hell-on-earth. The markets
decided to look on the bright side after the initial panic, encouraged by a lower oil price, though with the important exception of the US dollar, which, so far, has gone
down and stayed down.

One year on from the formation of the new Labour administration and it is hard not to be disappointed with their performance. After spending the first six months ‘talking
down’ the economy (despite an avowed ‘growth’ agenda), we were handed a distinctly ‘business unfriendly’ budget and increased spending. With the Chancellor’s
‘fiscal rules’ straitjacket in place, this all relied on curtailing welfare spending. Now we have been treated to some serious backtracking and the unedifying sight of PM
Starmer losing control of the Parliamentary Labour Party and the Chancellor in tears at the dispatch box. Could try a great deal harder…

The Bank of England has cautiously undertaken two quarter-point cuts in the Base Rate (to 4.25%) over the year but does appear to be quite stuck in the headlights at
the moment. Ten-year interest rates have been vacillating between 4.5% and 4.7% for most of the year and for longer periods have been edging higher. Not making it
any easier for the Government to service all the debt that is being piled up.

Other central banks have been cutting their rates, albeit that American rates are not coming down anything like fast enough for The President’s liking. The European
Central Bank (ECB) has led the way with four cuts over the first half, back down to 2% again, where it appears that the ECB would like to hold. With the euro being the
principal beneficiary of US dollar weakness, there might well be pressure for more cuts to avoid choking off the nascent European recovery. Meanwhile the Swiss are back down to zero again.

The price of oil has been a bit of a silver lining for world markets, slipping by around 10% over the past six months. Its inability to hold any rally during the height of recent Middle East hostilities was also striking. Now we have the President’s ‘ONE BIG BEAUTIFUL’ tax bill, which appears just to be a guarantee that America’s huge debt burden will only get bigger. Attempting to forecast the President’s next move in tariffs, geo-politics or domestic budget issues is clearly a mug’s game. The US and
World economy has, so far, managed to muddle through rather well despite all the noise and maybe this remains as the most likely outcome.

The full Quarterly Review is available here.

July 2025

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