Tag Archive for: Inflation

Germany’s 2025-26 Spending Plans: Delays Threaten Economic Growth and Stability

Germany’s Bold 2025-26 Spending Plans Face Delay, Slowing Short-Term Growth

By Julian Zimmermann | Published: September 26, 2025

Germany may delay extra spending on infrastructure and defense in 2025 and 2026. The delay casts doubt on near-term growth. Scope Ratings notes that the boost to the economy will come slowly. The government’s extra funds may not boost growth as quickly as planned.

Gradual Spending Increase and Its Impact on Growth

Scope Ratings sees that extra government spending could add 0.3 to 0.4 percentage points to GDP growth each year from 2026 to 2030. This spending might bring real GDP growth to about 1.2% per year on average. The positive effect depends on a rise in public investment from 2026, even when spending falls short of set targets.

Half of the planned EUR 59 billion from a EUR 500 billion special fund for infrastructure is set to be used in 2026. Spending is then expected to rise slowly to around EUR 40 billion each year. This sum equals roughly 0.92% of GDP.

Risks Threaten Spending and Economic Output

Several risks may weaken this plan. Under-spending in the public sector can lower private investments and slow growth. Legal and administrative issues can delay projects. Spending may be spread over many years, which would lessen its impact in the short run.

For example, Germany’s federal states receive EUR 100 billion from the fund. They have until 2043 to use these funds. Only one third of the total is set for use by 2029 if projects are approved by 2036. This long timeline shows how hard it is to speed up spending.

Structural Problems Add to the Delay

Slow investment may increase Germany’s growth problems. The country also faces a shrinking working-age population. Other pressures come from high tariffs set by the United States and stronger competition from Chinese manufacturers.

Tax and Debt Predictions Change

Scope Ratings now predicts that Germany’s debt-to-GDP ratio will reach about 70% by 2030. In 2024, this ratio was around 62%. This figure is lower than the earlier estimate of 74% in 2030. Though Germany reached a debt ratio of 81% in 2010, its current level remains high compared to similar nations, which averaged 36% in 2024. Germany’s fiscal deficit is predicted to fall to roughly 2.5% of GDP in 2025 from 2.7% in 2024. This drop comes after the 2025 federal budget was approved on September 18, leaving little time to spend funds. From 2026 through 2030, investment in defense and infrastructure is expected to increase, but still below government targets, leading to an average fiscal deficit of 3.6% of GDP.

Political issues limit extra fiscal flexibility. Changes to the debt brake rule seem unlikely because the current government lacks a two-thirds majority. This situation is hard to change in the current divided political climate.

New Funding Plans and Debt Sales

Germany’s finance agency raised its target for the last quarter of 2025 by EUR 15 billion to EUR 425 billion. A similar increase of EUR 19 billion was made in the third quarter. Although this marks the lowest gross issuance since 2021, net issuance should jump to EUR 94 billion in 2025 from EUR 67 billion in 2024. Net funding needs are expected to average EUR 130 billion each year during 2026-2028. This sum equals roughly 2.7% of the projected GDP.

Targeted and Timely Investment Spending is Needed

The law on the special fund requires that investments in the core government budget stay above 10% of total spending, as in 2024. With flexible accounting and parliamentary choice, the government decides if the rule stays in force.

The 2025 budget shows shifts between the core budget and the special fund. For example, the Federal Ministry of Transport faced net cuts of around EUR 11 billion, with funds moving to the special fund. Meanwhile, the Federal Ministry of Labour and Social Affairs saw a spending rise, mostly for unemployment insurance. This shift shows the government’s ability to move funds quickly, even as it makes the overall economic impact less clear.

For the full economic calendar and the latest updates on global markets, visit FXEmpire.

Julian Zimmermann is a Director who rates Sovereign and Public Sector and Financial Institutions at Scope Ratings. His work focuses on macroeconomics and public finance.

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Reviving the Dragon: How China’s Housing Stimulus Sparks Market Rally and Consumer Hope

China Housing Stimulus Bets Lift CSI 300 and Shanghai Composite

By Bob Mason, Published September 25, 2025

China stock markets get a boost. Investors sense that Beijing will soon use new help for the housing market. Housing stands as a key part of the country’s overall growth. On Thursday, September 25, 2025, mainland stocks rose strongly. The CSI 300 Index reached a level unseen since March 2022. The Shanghai Composite Index hit a 10-year high.

Housing Sector Struggles and Economic Impact

China’s housing market has faced hard times all year. These issues lower consumer hope. Real estate work dropped 12.9% from January to August. Residential housing area shrank by 4.7% during this time. Total home sales fell 7.3%. These numbers mark a steady fall that began earlier in the year.

Investor mood for real estate has dropped for five months now. Consumer confidence slipped to 87.9 in June, which is near the November 2022 low of 85.5. This trend slows spending and makes Beijing’s goal of a spending-led economy harder.

Calls for Policy Support

Huang Yiping from the People’s Bank of China urged officials to add fiscal help for the housing market. He spoke about the real estate sector and its weight on the overall economy. His clear words sparked hope among investors. They now expect that soon new measures will support housing. Recovery here may lift consumer hope and boost domestic buying.

The Consumption Challenge and Economic Indicators

Private spending makes up about 40% of China’s GDP. Falling external demand, hurt by US tariffs, now shifts focus to local buying. Retail sales grew 3.4% in August. This pace is slower than 3.7% in July and far behind the 6.4% seen in March. In the past, typical growth reached around 12.09%.

Exports slowed, growing only 4.4% in August after a 7.2% rise in July. These lower numbers put pressure on the government’s 5% GDP goal. They add weight to the need for new policy help.

Rising unemployment adds to the strain. The overall rate climbed to 5.3% in August from 5.2% in July. Youth unemployment reached 18.9%. These trends hurt spending and lower consumer hope.

Market Response and Outlook

The expected support has raised Chinese stocks. The CSI 300 Index now stands at 4,590. The Shanghai Composite has climbed to 3,900. These levels are high, and they mark strong gains. Year-to-date, the CSI 300 and Shanghai Composite have grown by 16.7% and 15.0% respectively, even under tariff pressures, a weak housing market, and soft demand.

Investors also see promise in high-tech fields like artificial intelligence and semiconductors. When compared with the 32.3% rise of the Hang Seng Index this year, mainland stocks seem more appealing.

Looking Ahead: Stimulus and Trade Dynamics

Focus now turns to Beijing and its next steps. Upcoming policy words will likely target help for the housing market and boost local spending. US–China trade talks also hold weight. The APEC Summit, set in South Korea from October 31 to November 1, will host key discussions. Talks may include tariff cuts and broader economic work. Such progress could support China’s recovery and steady stock gains.

For context, the CSI 300 once peaked at 5,931 in February 2021. The Shanghai Composite reached its all-time high of 6,124 in October 2007. Future private sector Purchasing Managers’ Index data for September will be watched for signs of what is next.

Conclusion

China’s housing market stays a key sign for the nation’s economic health. Calls for fiscal help and the rising stocks show clear hope. Policy moves may come soon to support and revive this important sector. A stronger housing market may spark consumer hope, raise local buying, and back steady growth amid many challenges.

For more real-time updates on China’s policy moves and stock trends, visit our economic calendar and market analysis sections.

About the Author:

Bob Mason has over 28 years of experience in the financial industry, covering currencies, commodities, alternative asset classes, and global equities, with a focus on European and Asian markets.

Sources: FX Empire, People’s Bank of China (PBoC), China National Bureau of Statistics

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Navigating Turbulent Waters: China’s Labor Market Challenges and Economic Future

China Labor Market Struggles Deepen, Clouding Economic Outlook

By Bob Mason, Published September 23, 2025, 03:58 GMT

China’s labor market shows clear struggles. Beijing set a 5% GDP goal this year, but weak export demand, low prices, and rising unemployment pull the economy down. The close links among these issues make it hard for China to switch to a consumption-led model.

Rising Unemployment and Weak Demand

The latest data for August show China’s unemployment rate at 5.3%, just above July’s 5.2%. Youth unemployment now sits at 18.9%, the highest since December 2023. This high rate adds stress for new graduates and young workers who face a tight job market.
Exports from China drop as trade tensions make deals hard. Price wars in the domestic market squeeze profit margins, and companies must cut jobs to save money. Fewer jobs mean consumers spend less. Retail sales in August grew by 3.4% year-on-year, down from 3.7% in July and 4.8% in June. Smaller growth shows that workers worry about their jobs.

Impact of US Policies on China’s Labor Market

US rules now bar some Chinese workers from the American job market. President Trump raised the H-1B visa fee to $100,000 to limit visitors with skills. This change may cut demand for Chinese talent at a time when over 12 million new graduates look for work.
These shifts have led to a drop in consumer confidence. The confidence index fell to 87.9 at the end of Q1 2025, while the long-term average is 108.95. With more doubt about future jobs, private spending slows, which puts more strain on Beijing’s plans to boost domestic demand.

Challenges for Policy Makers and Market Response

Policymakers now face a loop where weak jobs lead to low spending, which then pressures company profits and lowers jobs even more. The housing market also suffers, and global change adds to worries over steady growth.
The People’s Bank of China (PBoC) kept loan rates at 3% for one-year loans and 3.5% for five-year loans. This move shows a careful balance between pushing for growth and keeping finance stable. Bank leaders seem to wait for US–China trade talks to finish before they change policies further.

After talks between President Xi Jinping and President Trump on September 19, many see a chance for trade ease before the Asia-Pacific Economic Cooperation (APEC) Summit. Trump also stopped $400 million in military aid to Taiwan. Some see this as a sign that trade talks may move ahead.

Market Reactions and Outlook

Financial markets now show mixed signs. The CSI 300 and the Shanghai Composite dropped slightly by 0.01% and 1.67% respectively this month, even though both have risen by more than 13% year-to-date. In contrast, Hong Kong’s Hang Seng Index climbed 4.3% in September.
Market experts warn that without more policy help—especially support for the housing sector and more trade break—stocks in China may drop more. Key problems stay, such as US tariffs, a weak labor market, and low export demand.

The Road Ahead: APEC Summit and Economic Prospects

The APEC Summit in South Korea from October 31 to November 1 becomes more important as both Presidents Xi and Trump plan to attend. Many hope the meeting will help ease trade problems between the US and China. Still, experts think that some tariffs will stay, and the global economy must work with them.
Alicia Garcia Herrero, Chief Economist at Natixis Asia Pacific, notes that China has two sides: progress in IT and semiconductors, and struggles in the large real estate market. She points out that limits on Chinese imports—such as the ban on some Nvidia GPUs—may change supply chains further.
Data from the private sector Purchasing Managers’ Index (PMI) in September, due next week, will help guide views on the economic future. If export and job cuts continue, market hope may fall even more. If prices steady and domestic demand picks up, some worries might fade.

Conclusion

China’s job market gets tougher as US trade issues continue, and the economic outlook grows dimmer. As more people lose jobs and worry about spending, Beijing must find strong actions that work. The coming APEC meeting and talk between the US and China will draw much attention as any progress might help bring back trust and guide China toward its growth targets.

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UK Retail Sales Surge but Yearly Growth Slows: How It Affects GBP and What’s Next for the Bank of England

UK Retail Sales Surpass Expectations Despite Year-on-Year Cooling; GBP Slides Toward $1.35

By Bob Mason | Updated: September 19, 2025, 06:34 GMT+00:00

Overview

UK retail sales beat forecasts in August. The sales grew 0.5% from the previous month. This gain marked the third month in a row. Year-on-year, growth slowed to 0.7% from July’s 0.8%. The mixed data sent signals to the market. As a result, the British pound fell against the US dollar and neared the 1.35 level. This news puts the Bank of England’s future steps under a close watch.

Retail Sales Performance

UK consumer spending stayed firm in August. Sales grew by 0.5% in one month when compared to July. This rise repeated the gain of the previous month. Economists had predicted a rise of 0.3%. Store sales and online buys maintained strong links. Sales in clothing shops, local butchers, and bakers showed clear support. Weather that month helped push these sales up.

Year-on-year, sales slowed to a 0.7% increase. This drop from July’s 0.8% hints that buyers now hold back. Inflation and unknown economic signals may press consumers to spend less.

Inflation and Wage Growth Context

Inflation steps shape how people buy and how money rules adjust. The UK’s main inflation number stayed at 3.8% in August. At the same time, core inflation went down a bit, from 3.8% to 3.6%. Both numbers stay well above the 2% target. Policymakers watch these figures with care.

Wages tell a mixed story. Over three months ending in July, average earnings went up by 4.7% from last year. This is a small rise from 4.6% in the period before. In contrast, jobs in payroll dropped in July. Many expect more cuts in August. This slow shift in hiring and pay may ease the pressure on prices in time.

Market and Policy Implications

The steady rise in monthly retail numbers meets a slowing yearly pace. Inflation stays above the set target. The labor market shows signs of easing. These facts put the BoE’s rate committee in a tough spot. The signals now cause debate on where interest rates will go next.

At the meeting on September 18, the BoE held rates at 4%. Votes for a rate drop fell from five to two members. Governor Andrew Bailey said, “We see inflation drop back to 2%, but we face more work ahead. Future rate moves will come slowly and with care.” These words show careful steps in a time of doubt over wages and growth.

James Smith, research director at the Resolution Foundation, said inflation may rise a little before it gets lower over time. He said that even with lower pay rises and a softer job market, prices stay high for the BoE.

Currency Reaction

The market sent fast moves when retail numbers came out. The GBP/USD rate dropped from $1.35455 to near $1.35202 after the report. By September 19, the pair slid another 0.25% to $1.35204. The drop of the pound makes clear that investors fear spending may peak. They see more chance for easing of policy soon.

Looking Ahead

Now, the spotlight falls on new data. The UK Services Purchasing Managers’ Index comes on September 22. Experts now see service gains slow. They expect the index to drop from 54.2 in August to 51.7 in September.

A softer service scene, slower price growth in that area, and possible job cuts may push many to see a rate drop by November. However, if services show strong growth or if hiring stays good, this view may change. Financial firm ING still believes that a cut in November is likely if upcoming inflation data turn out fine.

Conclusion

UK retail figures in August beat short-term goals. But the fall in yearly numbers and high inflation keep the future unclear. Those in the market and in policy now watch wage links, job facts, and service trends. This close watch will help in the balance of growing the market and holding down rising prices.

About the Author

Bob Mason has worked in finance for over 28 years. His work spans global rating agencies and major banks. He covers news on currencies, commodities, alternative assets, and equities. He focuses on markets in Europe and Asia.

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Disclaimer: This article is for information only and does not serve as financial advice. Readers should do their own research or speak with financial advisors before any investments.

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Navigating Euro Area Inflation: Insights on Monetary Policy and Long-term Yield Trends

Euro Area Inflation Pressures Balanced; Rising Long-term Yields Pose Concern

By Dennis Shen, CFA | Published: September 18, 2025, 17:21 GMT

The ECB stayed with the same interest rate. This move shows that the bank watches the economy closely. Inflation stays near 2%, and decision makers see little need for rate cuts now as the economy shows strength amid risks.

Balanced Inflation Environment Amid Economic Resilience

Between June 2024 and June 2025, the ECB cut rates a few times. These cuts still work in the euro area. A new trade agreement between the US and the EU helped ease price pressure. The shift of low-cost goods from China and other regions, caused by higher US tariffs, plays its part too. The euro now grows against the US dollar and other currencies, which adds to lower price trends.

Core inflation, service prices, and wage gains, though lower than before, stay above the bank target. Labor markets stay tight and push prices up. More government spending in Europe—especially in Germany for defense and infrastructure—adds to price pressure. The upcoming EU energy trading regime in 2027 may push prices higher.

Scope Ratings sees inflation near 2.1% for 2025 and 1.9% for 2026. These numbers fall from last year’s 2.4% and from 2023’s high at 5.4%.

Future Monetary Policy: Dependent on Inflation, Growth, and Exchange Rates

Scope Ratings does not see more ECB rate cuts for the rest of 2025. The bank stays ready to change policy if the facts shift. The bias later this year and into 2026 goes to easing rather than raising rates. Any change to the deposit rate, now at 2%, depends on inflation trends, US–EU trade, economic growth, and how currencies move.

The euro is about 13% stronger against the US dollar this year. If it stays past the 1.20 level against the dollar, worries about deflation and less market strength may grow. As a strong reserve currency next to the dollar, the euro rises because the US trade and fiscal plans stay uncertain and US steps try to move the dollar.

US Monetary Policy and Euro Appreciation: Potential Pressure Points

US policy now has more weight. If the US central bank cuts rates along with market pressure, the ECB faces extra work if US and euro area rates move apart. A strong euro may push prices down and force the bank to act.

[Figure 1: Official interest rates (%) with Scope Ratings projections for 2025-2026 show expected US cuts alongside the ECB’s slow hold.]

Rise in Long-term Yields: An Emerging Concern

This year shows a steady climb in long-term euro area bond yields. The baseline view had long rates high for some time. Still, the recent rise shows a new worry for managers. If US rate cuts loosen long-run inflation expectations, euro area long-term yields can climb more and the yield curve may steepen.

The bank will not use major moves in reaction for now. The increase in yields shows market concerns over price trends. These concerns come from rising government spending, more debt, and political strain in countries like France.

The bank’s Transmission Protection Instrument, meant to stop policy gaps, seems unlikely to activate unless deep political trouble in France causes sharp falls in French bonds. Still, if yields jump widely across eurozone countries, the bank might pause its schedule to reduce assets.

[Figure 2: The upward path of 30-year euro area bond yields in 2025 shows a small recent fall.]

Implications for Borrowers and Credit Markets

Rising rates put pressure on global credit. Higher rates make debt harder to pay and limit access for borrowers who need it most. A steeper yield curve makes public and private borrowers try for short-term credit. This choice brings extra rollover and interest risks and may make financial settings even tighter, which can slow economic progress.

For a full summary of economic moves, readers can check the daily economic calendar.

Dennis Shen, CFA, leads the Macro Economic Council and serves as Lead Global Economist at Scope Ratings. Based in Berlin, he brings deep study of sovereign and public sectors, financial institutions, and corporate credit.

Related Articles:

  • Federal Reserve Runs Risk of Loosening Before Inflation Is Contained
  • UK Services Inflation Softens, Raising Odds of BoE Rate Cut in Q4
  • US Dollar Gains Ground as Initial Jobless Claims Drop to 231,000

For more insights, follow us at FXEmpire.

This article gives an analysis based on current economic facts and forecasts as of September 2025. It does not serve as financial advice or recommendations.

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China’s Chip War Heats Up: Alibaba and Huawei Seize the Opportunity Amid Economic Struggles

China Escalates Chip War Amid Trade Tensions: Alibaba and Huawei Set to Dominate Domestic AI Chip Market

September 18, 2025 — China pushes its chip battle against the United States as trade talks stall. Beijing cuts ties with US tech by stopping Nvidia AI chip sales. It backs home-grown makers like Alibaba and Huawei to build a local chip system.

US-China Trade Talks Hit Roadblock in Madrid

US Treasury head Scott Bessent met China’s lead negotiator Li Chenggang in Madrid. They sat together and talked. No major deal came out of their meeting on September 16. The two sides did arrange for TikTok to shift to American control. Trade talks, however, remain stuck. US tariffs on Chinese goods continue through at least the end of 2025. Beijing sees strain on its economy as a result.

Worsening Economic Indicators Signal Headwinds

Exports in China slow sharply. Growth drops from 7.2% in July to 4.4% in August. External demand falls. Private company indexes also show strain. Firms face rising costs and must cut selling prices. Lower margins force many firms to cut jobs for the fifth month in a row. Overall unemployment ticks up from 5.2% in July to 5.3% in August. Youth unemployment for ages 16-24 reaches 18.9%, a high since December 2023. Retail sales slow too. In August, sales rose just 3.4% compared to 6.4% earlier in the year.

Beijing’s Strategic Escalation in the Chip Sector

China’s tech authority orders its biggest firms to stop buying Nvidia chips. The ban halts new orders and cancels existing ones. This step extends earlier restrictions on select Nvidia items. It shows China’s intent to build its own chip supply line for AI use. The market feels this move. Nvidia shares drop 2.62% on September 17 against the Nasdaq Composite’s slight 0.33% fall. Analysts note that this choice may take away $100 billion from Nvidia’s market value.

Alibaba and Huawei Poised to Capitalize

The chip ban turns the spotlight on local companies. Alibaba wins a key deal with China Unicom, the country’s second-biggest wireless provider, to use its own T-Head AI chips. The firm invests about 380 billion yuan ($53.5 billion) over three years to build its AI and chip system. Its stock rises over 5% on September 17 and climbs to a 98% increase for the year, far outpacing Nvidia’s 26.8% gain in the same period.

Huawei also steps up. It plans to launch the Ascend 950PR chip in the fourth quarter of 2026, with more chips to come until 2028. The company builds its reputation in home-grown AI hardware.

Market Reactions and Broader Implications

Mainland Chinese stocks gain strength in 2025. The CSI 300 and Shanghai Composite go up by 15.8% and 16.1%, just ahead of the Nasdaq Composite’s 15.3% rise. Hong Kong’s Hang Seng leads with a 34% jump for the year. Market risks still remain. Trade tensions continue, housing shows signs of weakness, and pressure on profit margins and job reductions add to worries. These factors may slow down household spending and growth further.

Outlook and Strategic Considerations

Some experts keep a hopeful view. Goldman Sachs has raised its China 2025 GDP forecast from 4.6% to 4.8%. This hope rests on a push for more fiscal support in job and housing areas. China’s growing role in AI investment and chip building now sets its path toward tech independence amid ongoing US-China rivalry. Local companies like Alibaba and Huawei now lead China’s chip scene. Their move may shift the global balance in semiconductor production.

This report will be updated as developments in US-China ties and China’s semiconductor scene continue to change.

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Will the Fed Cut Rates Too Soon? An In-Depth Look at Inflation Risks and Market Pressures

Federal Reserve Runs Risk of Loosening Before Inflation Is Contained

By Dennis Shen, Updated September 17, 2025, 16:43 GMT+00:00

The Federal Reserve gets set to announce new interest rates. Many experts fear the bank may ease rules too soon while inflation still runs high.

Current Economic Context

Headline inflation in the United States stands at 2.9%. The economy grows at about 2%. Some signs show a small dip in the labor market, yet the overall scene stays strong. Uncertainties from higher tariffs make the outlook less clear. Most expect the Fed to cut rates by 25 basis points in its next meeting.

Market Expectations and Political Pressures

Financial markets mostly assume a rate cut is on the way. Some investors even guess a 50bps cut will come. This view comes from market mood and political push. The U.S. administration asks the Fed to ease fast to boost growth. Cutting rules too early might let inflation come back strong.

Risks of Premature Easing

Cutting rates before inflation is well checked brings back memories of last September. Then, a 50bps cut was made under market and political weight after short-lived labor worries. Today, lower immigration means the job market may need fewer workers to stay balanced. This factor could lower the need for large cuts.

Chairman Powell might point to signs of stress in the job market. Weak payroll numbers in August, small rises in the unemployment rate, and more claims for jobless benefits add to this view. A drop in producer prices and a slow rise in core price levels may further back the case for a cut.

Gauging the Magnitude of Rate Cuts

Some discuss a 50bps cut, but even many FOMC members are not set on a 25bps move. Capital markets now show a taste for small steps. A large cut might seem like a sign that the Fed waited too long, a view that fuels critics who say Powell acted “too late.”

The key issue goes beyond September. Whether the Fed makes more cuts later depends on new economic data, price trends, and shifts in market and political views. Powell is expected to show he welcomes more cuts while warning that inflation stays above the target. In the services sector, inflation now holds at 3.8%.

Inflation Outlook and Economic Challenges

Inflation may come down next year, but several risks remain. Higher tariffs, a strong economy, and loose fiscal plans add pressure. Core inflation stays high at 3.1% year-over-year, marking a multi-month peak. These factors make more rate cuts a clouded option.

Political Influences on Fed Independence

Market watchers see rising political pressure on the Fed. President Donald Trump has asked for a swift 300bps reduction in rates. A Trump supporter, Stephen Miran, now helps guide the Fed board. Moves to remove key governors make some worry about the bank’s freedom.

This political push might steer monetary policy toward a softer side. A softer policy could hurt long-run price and money stability. It might also weaken the U.S. dollar, a change that could speed up the switch away from the dollar.

Conclusion

The Federal Reserve stands at a clear fork: acting fast risks a return of high inflation, while waiting might slow growth amid job market worries. Stakeholders will watch closely for the Fed’s hints in the coming days and months as it tries to keep the balance between growth support and price control.

About the Author:
Dennis Shen, CFA, is the Chair of the Macroeconomic Council and Lead Global Economist at Scope Ratings, Berlin, Germany.

For ongoing updates about economic events, visit our economic calendar.

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UK Services Inflation Eases: Implications for BoE Rate Cuts and GBP/USD Trends

UK Services Inflation Softens, Increasing Chances of Bank of England Rate Cut in Q4; GBP/USD Dips

By Bob Mason | Published: September 17, 2025, 06:16 GMT

UK inflation data now shows that prices in the services sector fall. This drop may push the Bank of England to cut rates. The British pound moves oddly against the US dollar as markets watch the BoE’s next step.

UK Inflation Data Highlights

In August 2025, UK services inflation moves down to 4.7% from 5.0% in July. This drop points to easing price rises in a sector that holds over 70% of the country’s GDP. Core inflation, which leaves out energy, food, alcohol, and tobacco, falls from 3.8% in July to 3.6% in August. At the same time, the yearly headline Consumer Price Index (CPI) stays at 3.8%.

Data from the Office for National Statistics shows the CPI for owner-occupiers’ housing costs (CPIH) rises 4.1% over the past year to August. This is slightly lower than the 4.2% rise in July. Air fares pull the rate lower, while restaurant, hotel, and motor fuel prices push it up. Core CPIH also drops a bit from 4.2% to 4.0% in August.

Implications for Bank of England Policy

The fall in services inflation, and especially in core prices, may shape the BoE’s next choices. Past fears of high services inflation kept rate cuts at bay. New numbers now might show a different path.

Yet, the economy shows mixed signs. Early September data show wages rise at a faster pace. Average earnings, including bonuses, climb to 4.7% in the three months to July, up from 4.6% in June. The unemployment rate stays at 4.2%, a sign of a tight job market that keeps demand and prices near their levels.

Economists see a split in the upcoming BoE meeting on September 18. Two votes stand ready to lower rates while seven votes hold at 4%. Market scouts watch these numbers. More votes for a cut could push up the chance for a move in November. A clear rate cut will depend on a faster drop in inflation and wage gains in the September reports.

ING Economics notes: "Private sector jobs fell more in August. This may push wage growth below 4% by year-end. That route may allow a BoE cut, though our call for a November drop still hangs in question."

GBP/USD Reaction

After the new inflation numbers came out, the GBP/USD pair shows soft moves. It drops to 1.36369 before the news, then rises briefly to 1.36589 early Wednesday. When the numbers come out, the pair edges to 1.36526 and settles near 1.36419. By mid-morning on September 17, the pair sits close to 1.36456. This calm shows market care amid mixed signals.

Economic Data to Watch and Market Outlook

Investors now watch the BoE decision on September 18 very closely. Soon, UK retail sales will appear on September 19 while the Services Purchasing Managers’ Index (PMI) comes on September 22. These numbers will play a role in the Bank’s view and steps ahead.

UK retail sales are expected to rise by 0.4% in August after a 0.6% move in July. Good retail data may lessen the chance for easing in the fourth quarter, but weak numbers may give more room for a rate drop.

The Services PMI is seen to fall from 54.2 in August to 51.7 in September. A clear slowdown in services, along with some job cuts and lower price changes, might support a rate drop in November.

Conclusion

The drop in UK services inflation ties into important choices for the Bank of England as it finds a balance between holding down inflation and supporting growth. Wage trends stay a worry, but the softer numbers raise the chance for a rate cut in the last quarter of 2025. Traders now watch for upcoming data and clear signals from the BoE on its next steps.

Keep up with in-depth insights on BoE moves, GBP trends, and global market changes on FXEmpire.

About the Author:
Bob Mason is an experienced financial reporter with over 28 years covering currencies, commodities, and stocks across European and Asian markets. He has worked at global rating agencies and large banks, giving clear views on world market trends.

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UK Wage Growth Sparks Inflation Concerns and GBP/USD Rally: What It Means for BoE Policy

UK Wage Growth Strengthens Inflation Outlook, Delays BoE Policy Easing; GBP/USD Rises

September 16, 2025 — By Bob Mason

UK labor market data shows strong wage gains. The data makes inflation worries grow and slows any change in BoE rates. At the same time, traders drive the British pound higher against the US dollar.

Rising Wages and Steady Unemployment Signal Inflation Risks

The Office for National Statistics shows that wages grew by 4.7% over the three months ending in July. The rate edged up from 4.6% in June. These numbers add to a strong labor market. They may lead to more spending, which can push prices up.

Unemployment stayed at 4.7% in July. The result helps explain the overall health of the labor market. However, fewer people worked on a payrolled basis. In July, the count dropped by 6,000. Compared to July 2024, the loss was 142,000. Early numbers for August show a fall of 8,000 payrolled workers.

The report shows that job vacancies have fallen month after month for 38 months in a row. Between June and August 2025, vacancies dropped by 10,000. Fewer claimants made requests in July. Yet, the total claim numbers stay lower than last year. They stand at 1.686 million.

Implications for Bank of England Policy

This data puts the Bank of England in a hard spot. Wage gains and steady jobs keep consumer faith high. High spending can push demand and prices up.

Inflation numbers from earlier this month add to this view. In July, the annual headline rate climbed from 3.6% to 3.8%. Core inflation also stood at 3.8%. Both rates sit above the Bank’s 2% target. Markets now see less chance for a rate cut soon.

Economists at ING note that August inflation data may show a small drop in basic price moves. Yet, strong labor figures point to a steady policy stance. The next BoE meeting comes on Thursday, September 18. —

Currency Market Reaction: GBP/USD Rises on Hawkish Sentiment

The strong labor data gave the British pound a lift. The GBP/USD rate rose from a low near $1.35920 to a high at $1.36275. It then fell a bit. In the morning session on September 16, GBP/USD stayed near $1.36249. This gain of 0.19% marks the day.

Investors now expect that the Bank of England will hold its current stance. The steady wage growth and weighty inflation data push them toward a firm tone at the BoE.

Looking Ahead: Inflation Data and Economic Indicators in Focus

Market watchers will soon see the UK inflation report due on September 17. Analysts expect headline inflation to remain near 3.8% while core inflation may slip to 3.6%. If inflation falls more than most expect, some may hope for a rate cut in November. Such a change could put pressure on the pound.

UK retail sales data on September 19 will also show more about how consumers spend in this price environment.

Summary

• UK wages grew 4.7% in the three months ending in July, up from 4.6% in June.
• Unemployment held at 4.7%.
• The number of payrolled employees fell month over month, and job vacancies have dropped for 38 consecutive months.
• Inflation remains above the Bank of England’s target, both in headline and core measures.
• Fewer market views see a near-term policy change at the BoE because of strong labor data.
• GBP/USD rose to about $1.3625 on a firm market tone.
• Upcoming inflation and retail sales data may shift views on future policy.

Policymakers and investors now await new inflation numbers and other signs of economic direction. They watch all moves closely as the Bank of England plans its next rate decision.

Bob Mason is a financial journalist with over 28 years of experience. He covers global markets, including currencies, commodities, and equities, with a focus on European and Asian economies.

Stay tuned to FXEmpire for the latest updates on global macroeconomic trends, central bank decisions, and currency forecasts.

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China’s Economic Struggles: Trade Talks Intensify Amidst Rising Unemployment and Urgent Need for Policy Support

China Growth Wobbles as Trade Talks and Policy Support Take Center Stage

By Bob Mason
Published: September 16, 2025, 01:23 GMT+00:00

China’s economy shows weakness amid tough trade talks and domestic tests. New data and market signs report lower growth, higher costs, and weaker spending. This news brings more calls for clear fiscal actions to support the world’s second-largest economy.

Economic Growth Hits Speed Bumps

China’s industrial output grew 5.2% in August compared to last year. This growth falls from July’s 5.7% mark and a high of 7.7% in March. Tariffs and soft demand work together to slow down manufacturing. Lower output growth makes firms worry about profit ties and may slow the whole economy.

Margin Squeezes and Rising Unemployment

Surveys from the manufacturing and services groups show sharp changes. Rising costs force private companies to cut prices and thin their profit margins. To handle these costs, many companies cut jobs. This push raised the unemployment rate from 5.2% in July to 5.3% in August.

Young workers suffer most in this struggle. Youth unemployment climbed from 14.5% in June to 17.8% in July. This gap adds to job challenges and demands clear policies to boost new work chances.

Consumption Slumps Amid Economic Pressures

Higher unemployment and dropping house prices work to slow private spending. Retail sales growth fell from 6.4% in March to 3.4% in August. With less money in hand, consumers spend less and feel less sure.

This trend puts Beijing’s 5% GDP goal at risk. Falling house prices hurt consumer trust. Policy moves to steady the housing market and spur job creation, especially for young workers, are now vital.

Urgent Calls for Targeted Fiscal Stimulus

Experts at Goldman Sachs ask for more focused easing measures. They point to weak local demand and ongoing soft areas in the labor and property sectors. Floods in early August, limits on construction ahead of a military parade, a falling property market, and strict moves against price fights add pressure to the economy.

Trade Talks Under Pressure

China faces these issues as trade talks happen in Madrid. The United States, European Union, and Mexico press hard on tariffs. Such moves may slow down China’s export boost. For example, Mexico plans to place a 50% tariff on auto imports. This change adds to the hurdles for Chinese sellers.

US Treasury Secretary Scott Bessent mentioned that the US-China tariff break could stretch 90 more days before the November 10 end date. He noted the firmness of Chinese negotiators. At the same time, China’s trade chief Li Chenggang showed progress on a TikTok agreement yet said China stands firm on its business interests.

A high-level call between US President Trump and Chinese President Xi Jinping set for September 19 may shift talks. A key point is whether Beijing will cut down on Russian oil buys in return for tariff help. This idea came after a Shanghai Cooperation Organization meet. Even if Beijing keeps its foreign view strong, a little opening in stance is not ruled out.

Policy Initiatives and Market Response

Inside the country, China moves to boost the service scene and fix market gaps. President Xi Jinping wrote an article urging efforts to join the national market, stop low-price fights, close old factories, and fix tax and loan laws. These shifts aim to clear up market issues, fuel fair fights, and push a spending-based growth plan.

Even with these tests, Chinese stock markets show strength. The CSI 300 and Shanghai Composite indices have both risen about 15%, following a rise similar to the Nasdaq Composite. The Hang Seng Index has soared by 31.8% this year, showing high interest in China stocks.

Trade tensions, a weak housing scene, and soft demand still trouble investors. Continued tariff fights and a slower economy may cause more job cuts and less spending. This trend could weigh on risk assets soon.

Looking Ahead

As China deals with these hard tests, policy makers feel pressure to add fiscal and monetary support while handling trade ties in a changing worldwide scene. The results from trade talks, efforts to steady the housing market, and steps to boost work and spending will shape China’s pace in the months to come.

The situation remains a key watch for global markets and policy makers. Observers keep a close eye on shifts in trade rules and Beijing’s home reforms in the days ahead.

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