August was a month of surprises – from unexpected rate cuts in the UK to soaring U.S. tech stocks riding the AI wave, markets were anything but quiet.
August saw diverging central bank moves, strong equity gains, and persistent inflation concerns. In the UK, solid growth and rising prices led the Bank of England to cut rates again, surprising markets. Globally, U.S. tech stocks surged on AI momentum, trade tensions escalated, and bond yields spiked as investors reassessed rate paths. Here’s a quick recap of the key developments.
UK
- The FTSE 100 closed above 9,200 for the first time in mid-August on the back of better-than-expected economic data and strong defence and financial stocks.
- The Bank of England surprised markets by cutting interest rates by 0.25% to 4.0% – its fifth cut under the new government – even as inflation rose.
- Inflation accelerated to 3.8% in July, up from 3.6% in June and an 18-month high, driven largely by surging airfare, transport costs and food prices.
- The UK economy grew +0.3% QoQ in Q2, after a strong 0.4% GDP rebound in June (after two weak months), and which helped Britain remain the fastest-growing G7 economy in the first half.
- Public finances showed a glimmer of improvement, with the the government borrowing just £1.1 billion in July – the lowest July borrowing in 3 years and beating OBR forecasts.
- The housing market saw slowing annual house price growth of 2.1% (Nationwide), although mortgage approvals reached their highest level since August 2024.
U.S.
- U.S. equities extended their rally with major indexes reaching new highs. The S&P 500 notched fresh record peaks and the Dow Jones jumped 850 points for its first record close of the year.
- The AI boom continued to elevate tech giants. Nvidia briefly hit a staggering $4.34 trillion market cap, solidifying its position as the world’s most valuable company.
- The frenzy broadened beyond chips – Oracle’s valuation approached $1 trillion after the company reported booming cloud demand and raised its outlook, sending shares up c.40%.
- The U.S. economy remained a mixed picture of resilience and cooling. Unemployment stayed low at about 4.2%, but job growth has slowed sharply.
- U.S. inflation is near target by not yet tamed. Headline CPI was 2.7% in July (core 2.9%), roughly unchanged and far below last year’s peak. This has sparked debate within the Fed.
- In the eurozone, inflation has fallen in line with the ECB’s 2% target, helping to justify a pause in monetary easing. The ECB kept its key deposit rate unchanged at 2.0% in July.
- The global trade war escalated under U.S. pressure. After Canada failed to strike a deal, Washington hiked tariffs on Canadian imports from 25% to 35% effective August 1.
- The U.S. imposed punitive 50% tariffs on imports from India and Brazil as retaliation for those nations’ policies, dealing a blow to exporters in those countries.
- There were temporary reprieves and deals in this tariff standoff. The U.S. granted 90-day tariff pauses to Mexico and China, postponing huge impending tariff hikes.
- China’s economy lost momentum – July marked its slowest month of the year – which has heightened expectations that Beijing will introduce additional stimulus measures.
Fixed interest
- UK gilts suffered a significant sell-off, sending borrowing costs to multi-year highs over concerns of the government’s fiscal stance and inflation pressures.
- The 30-year UK yield spiked to 5.72% – the highest since 1998 – and the benchmark 10-year gilt hit 4.825 as investors demand a higher premium for lending to the UK.
- U.S. Treasury yields seesawed through August. Hotter-than-expected inflation data and the Fed’s no-cut decision pushed the 10-year yield up to around 4.3%, the highest in nearly a year.
- Corporate credit remained broadly upbeat. High-yield bonds continued to outperform investment-grade debt, extending a trend seen earlier in the year.
- Market expectations overwhelmingly point toward monetary easing ahead. Interest-rate futures and analysts are now betting the Fed will cut rates by 0.25% in September.
- In the UK, a Reuters poll shows most economists predicting the BoE’s first rate cut by November and further reductions into 2026.
Other
- The British pound (GBP) weakened and briefly traded at $1.34 against the U.S. dollar, driven by a combination of surging UK bond yields and a general flight-to-safety.
- The U.S. dollar’s rebound stalled in August. After strengthening through July, the Dollar Index (DXY) pulled back as traders began pricing in Fed rate cuts.
- Ray Dalio urged investors to allocate around 15% of their portfolio to gold or Bitcoin as a hedge against currency debasement and fiscal turmoil.
- Cryptocurrency markets saw a resurgence led by Ethereum. Prices nearly doubled from June lows and reached about $4,300 in August.
Would you like a second opinion on your investment performance? Get in touch by calling 03300 564 446, or use our contact form.
This article is for general information purposes only and does not constitute financial advice or a personal recommendation. Past performance is not a reliable indicator of future results. Investments can rise or fall in value, and you may receive less than you originally invested. Tax treatment depends on individual circumstances and may change in the future.
