Despite continuing concerns over the possibility of an AI-fuelled stock market bubble, ongoing global trade tensions, and – closer to home – mounting speculation about possible measures in the UK government’s forthcoming Budget, UK equity markets ended October in positive territory.
- Investors remained preoccupied by the Budget
- The FTSE 100 Index hit a new high
- The Bank of England highlighted the risk of a “disorderly adjustment”
Cutting through the noise: despite continuing concerns over the possibility of an AI-fuelled stock market bubble, ongoing global trade tensions, and – closer to home – mounting speculation about possible measures in the UK government’s forthcoming Budget, UK equity markets ended October in positive territory. While the FTSE 250 Index climbed by 0.7%, the blue-chip FTSE 100 Index rose by 3.9% over the month and hit a new high, boosted by the impact of higher gold and oil prices alongside positive corporate earnings reports.
“‘Valuations could now be at odds with the uncertain economic and geopolitical outlook’” (Financial Stability Board)
Stretched valuations: the Bank of England (BoE) warned that the risk of a “sharp market correction” has increased and that valuations appear stretched, particularly among technology firms focusing on AI. Elsewhere, the Financial Stability Board commented: “Valuations could now be at odds with the uncertain economic and geopolitical outlook, leaving markets susceptible to a disorderly adjustment.”
All eyes on the Budget: ahead of the Budget on 26 November, British Chambers of Commerce reported that UK businesses have become increasingly concerned over the possibility of tax increases and inflationary pressures. UK government borrowing rose to £20.2 billion in September – its highest September level since 2020 – driven higher by an increase in debt interest costs. The news triggered fresh speculation over possible strategies in the impending Budget.
Services sector stalls: the UK economy expanded by 0.1% during August. Activity in the manufacturing sector boosted growth; however, the services sector stagnated during the month. Meanwhile, growth in July was downgraded from no growth to a contraction of 0.1%. Nevertheless, the International Monetary Fund (IMF) expects the UK to deliver the second-fastest economic growth of any country in the G7 this year, outstripped only by the US. The annualised rate of inflation remained stable at 3.8% year on year in September; the IMF forecast UK inflation to average 3.4% this year and 2.5% next year – the highest rate among the G7 nations – and urged the BoE to be “very cautious in its easing trajectory.”
Consumer-driven profit warnings: a quarterly study from EY found 64 profit warnings from UK-listed companies in the third quarter. A record 47% were sparked by policy change or geopolitical uncertainty, while 19% cited weaker consumer confidence. Consumer-facing sectors saw an increase in profit warnings during the third quarter, and warnings in the media sector hit their highest level in two years.
To view the series of market updates through October, click here
