Anguish and angst: Weak activity poses policy problems and muddies the FX outlook
Market Pulse Webinar
Catch up on our December webinar with Neil Parker, Head of Economics and Market Strategy, as he unpacks the challenges facing European economies, and what they mean for monetary policy and FX market volatility. Neil also revisits the UK Budget unpacking key announcements and assessing how they reshape the UK outlook.
Webinar date: 18 December 2025
Key takeaways
European economies are grappling with sluggish growth, stifling investment and hiring, and eroding productivity. While lower interest rates could spur activity, the path is far from straightforward: UK inflation remains stubbornly high, Euro Area faces tariff headwinds despite recent cuts, and US policy uncertainty looms amid shutdown risks and limited data.
Global growth outlook: Disappointment persists
Economic activity remains weak across major economies, with IMF and OECD forecasting slower growth in 2026. Despite monetary easing, Euro Area recovery is muted, and UK Budget measures offer little support for private sector investment.
UK Budget: a ‘spend now, pay later’ approach
The latest UK Budget introduces tax hikes and welfare spending increases, pushing deficits higher until 2029. Key measures include frozen tax thresholds, NICs relief caps, and new duties on electric vehicles, raising concerns about fiscal sustainability.
Interest rate shifts: diverging central bank paths
The Fed and Bank of England are expected to cut rates, while the ECB holds steady and the Bank of Japan prepares for its first hike since early 2025. These moves highlight contrasting policy responses to global economic challenges.
US economy: lower rates, limited relief
Despite rate cuts, the US economy faces headwinds from a weak housing market, cautious consumer spending, and declining job growth—raising doubts about the effectiveness of monetary easing.
Euro Area: growth stalled despite easing
German and Italian weakness continues to drag Euro Area performance. Even after significant rate cuts, economic momentum remains elusive, underscoring structural challenges.
FX market outlook: sterling under pressure
Sterling faces downside risks following the UK Budget and persistent economic uncertainty. While the yen strengthens on rate hike prospects, sterling’s medium-term outlook remains vulnerable to fiscal and monetary dynamics.
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