The big three (August 2025)

1. Central Banks at crossroads

The Bank of England cut interest rates from 4.25% to 4% in August, but a narrow 5–4 vote exposed deep divisions among policymakers and underscored the complexity of the current environment. Inflation surprised to the upside in June at 3.6%, while GDP contracted by 0.1% in May. Labour market data has also softened, with employment falling in seven of the past eight months and wage growth cooling, though the weakness remains concentrated in sectors like hospitality.

Despite the cut, Governor Andrew Bailey struck a cautious tone, emphasising the need for a “gradual and careful” approach. Markets interpreted this as a hawkish tilt, especially after the Bank of England’s forecast that inflation could peak at 4% in September, above prior estimates, due to rising food prices. Traders now price a roughly 70% chance of another 25bps cut by year-end. However, with sticky inflation and faltering growth, fears of a stagflationary backdrop are emerging.

On the other side of the Atlantic, the Federal Reserve held rates at 4.25%–4.5%, citing low unemployment and solid labour market conditions. However, two Federal Open Market Committee (FOMC) members dissented in favour of a cut, and Chair Powell acknowledged that weaker forward indicators have increased the case for easing. Markets now expect a cut in September.

Source: CNBC

2. Trump doubles down on India 

On 6 August, President Trump announced a fresh 25% tariff on imports from India, citing the country’s continued purchases of Russian oil. He also promised to impose a 100% tariff on semiconductor imports but said that companies such as Apple that invested in the US could avoid the levies.

The White House accused India of “funding Russia’s war on Ukraine,” pointing to a sharp increase in oil imports from Moscow. In the first five months of 2025, India bought $19.5 billion of Russian crude, making it Russia’s largest buyer of seaborne oil. India’s foreign ministry defended the purchases as market-driven and necessary to meet domestic energy needs.

The new duties, set to take effect on 27 August, will double existing tariffs to 50% on a range of Indian goods. In response to the news, the Nifty 50 fell 0.7%, led by declines in export-reliant sectors such as textiles and gems.

Source: FT

3. OECD flags investment slump

The OECD (Organisation for Economic Co-operation and Development) has warned that business investment in advanced economies remains subdued, posing a significant risk to global economic growth. Net corporate investment is still 6.7% below pre-pandemic levels, with only 2 out of 34 countries exceeding their pre-financial crisis investment trends. This reluctance stems largely from persistent uncertainty around regulation and trade policies, causing firms to delay or scale back long-term capital expenditures. Although investment in digital and knowledge-based sectors has surged, it has not compensated for declines in physical asset investment and increased depreciation costs.

In contrast, the International Monetary Fund (IMF) has recently revised upward its global growth forecasts, reflecting signs that the impact of President Donald Trump’s trade war may be less damaging than initially anticipated. The IMF now projects global growth of 3% in 2025 and 3.1% in 2026, up from earlier estimates of 2.8% and 3% respectively. Additionally, a weaker US dollar has supported the global economy by reducing the debt servicing burden on many emerging market firms with dollar-denominated liabilities, easing financial pressures abroad.

Source: FT