Top 3 Economic Stories this Week

Eurozone and US Inflation Signals

Unexpectedly, we saw Eurozone inflation move upwards this week, as Eurostat's flash estimate showed the areas inflation rising to 2.2% from 2.1%. This does keep the measure close to its target but not with a convincing downward trend. It was services inflation that had the impact on the inflation figure, as underlying inflation measures held relatively steady. Chief Economist for the ECB, Philip Lane recognised recent upside inflation surprises, pushing back against the idea that price pressures ease smoothly in one direction, continuously. Such language has tended to anchor rates higher for longer in the past, as it acts as a signal that the ECB wants clearer evidence before rolling out easing measures. Services inflation matters substantially because are closely linked to wages, rents and even domestic demand - meaning that they will typically cool more slowly than energy prices or goods themselves. Therefore, even if the headline inflation behaves, a sticky services measure highlights that disinflation towards the 2.0% target will be a gradual journey rather than a straight line down. Since inflation data showed less cooling than expected bond yields rose for front end yields as investors pushed back expectations for a rate cut. In the US, there was not a headline that spooked markets per se, but rather a reaction to a set of underlying signals. Investors looked at factors such as producer pricers and pricing components within business surveys which some interpreted as a sign that goods inflation could reaccelerate, even while U.S. services inflation eases. However, some asset managers, including State Street Global Advisors did note that inflation progress is genuine in the US. However, they also argued that it is not yet consistent enough for the Fed to begin any form of easing policy.

Post-Budget Growth Concerns in the UK

Growth concerns have resurfaced in the UK after the 2025 autumn budget. This comes after mortgage activity showed hesitancy pre budget, as BoE "Money and Credit” figures reported mortgage approvals down slightly month-on-month. As well as remortgage approvals falling, which suggests that households in the UK are cautious about locking in borrowing decisions. For growth, this is significant as housing is a major "multiplier sector", if you consider that fewer approvals entails fewer transactions, which will lead to less spending on renovations, appliances and furniture. Therefore, one could argue that weaker housing turnover can signal softer activity in retail and services. The angle of "post-budget" still matters even if the above data is from October, as the budget undoubtedly added a layer of perceived tightening with a higher effective tax burden via the frozen thresholds. This leaves households and businesses behaving even more cautiously even before the measures come into play, and as behaviour changes first, the hard data is likely to catch up later, which we will be watching for in the weeks/months to come.

China Continues Targeted Support as Domestic Demand Slows

S&P Global showed that the manufacturing PMI fell from 50.6 to 49.9 which fell below expectations (around 50.5). Any readings Sub-50 act as a clear signal that growth is stalling in industrial activity. Meanwhile, China's official NBS manufacturing PMI was still in contraction at 49.2, marking continued sub-50 conditions for manufacturing across much of 2025. Private PMI commentary did however note that export orders improved, but it was not enough to offset the weak domestic demand that China currently faces. This does display that China can rely on exports to support growth, but even still, shouldn't ignore that domestic confidence remains a constraint for their economy. Chinese authorities continue to favour incremental support rather than large scale stimulus packages out of fear that the latter could further strain already stretched local government balance sheets and introduce new risks around financial stability. Instead support is being channelled into specific areas; giving SMEs easier access to credit and introducing selective property measures within specific cities - which looks to stabilise house sales rather than fuelling a boom. The property remains a central pressure point in the Chinese economy, as property weakness surpasses household wealth and consumer confidence as well as local government revenues which are heavily reliant on sales of land. Furthermore, private sector sentiment in the construction industry will weaken as well. As a result, even pockets of strength elsewhere (such as exports) struggle to translate into a recovery as the problem continues otherwise. Commodity markets reacted cautiously to the slip in manufacturing PMI as demand for construction and industrial inputs were softened.

Policy Pulse: Central Banks

Market confidence signals that rate cuts are imminent. Meanwhile, Fed officials pushed back to the latter, arguing that isolated inflation improvements do not justify a sudden policy pivot. They further argued that there is a need for broad-based disinflation across services and wages particularly, before any form of easing policy can be introduced. Markets responded to the previous argument by scaling back their previous expectations for early cuts. For the BoE, the autumn budgets' fiscal tightening has added uncertainty to their previous growth and inflation outlook. Policymakers in the UK currently weigh up the possibility that fiscal tightening may weaken demand and therefore inflation, and the other concern that remains; lingering services and wage pressures. Near term rate cuts are hard to justify when the BoE lacks clarity around how households and businesses will absorb higher taxes and frozen thresholds, meaning that cuts are unlikely until clearer post-budget data is released. The ECB reinforced the view that their policy rates are likely to remain unchanged in the near term, as recent inflation data including upside surprises in services supported the ECB's case for patience in this economic climate. The ECB is arguably seen by investors as the most predictable of the major central banks at present, which could be a positive signal for the eurozone area.

Industry Spotlight: Cloud Computing and Data Infrastructure

As companies accelerate their adoption of AI and digital transformation processes, corporate demand for cloud services continued to rise this week. Data Centre operators (and Hyperscalers) saw heavy capital investment, particularly in the US and Europe as new data-centre projects were announced or expanded to support AI workloads. Some key constraints emerging in the growing industry are energy availability and efficiency. This is down to data centres requiring large and reliable power supplies, and energy costs alongside grid capacity shaping decisions around location for large projects. This matters economically because data infrastructure is beginning to be treated as strategic infrastructure by governments, which links them in with energy policy and certainly national competitiveness. Investors favour cloud infrastructure as some have argued that unlike some speculative tech, data centres offer consistent cash flows and asset backing.