Trade tariffs continued to affect investment markets in June 2025, though uncertainty did start to ease. However, rising tensions in the Middle East may have affected the performance of your investments. Read on to find out more.
Remember, it’s often wise to take a long-term view of your investments when reviewing returns, rather than focusing on short-term market movements.
In June, the Organisation for Economic Co-operation and Development (OECD) cut its global growth forecast to 2.9% in 2025 and 2026, down from 3.1% and 3% respectively, on the assumption that tariff rates in mid-May are sustained.
The OECD said: “Substantial increases in barriers to trade, tighter financial conditions, weaker business and consumer confidence and heightened policy uncertainty will all have marked adverse effects on growth prospects if they persist.”
Similarly, the World Bank lowered its growth forecasts for nearly 70% of all economies. It estimates that the 2020s are on course to be the weakest decade for the global economy since the 1960s.
Trade tensions ease, but uncertainty in the Middle East leads to volatility
On 2 June, a European market sell-off started in early trading as investors continued to react to the trade war. Stock indices, which track the largest companies listed on each stock exchange, were down, including Germany’s DAX (-0.25%), France’s CAC (-0.5%), and the UK’s FTSE 100 (-0.27%). Markets in the US also opened lower, including the S&P 500 dropping 0.3%.
However, there was some good news in the UK. Following the announcement of a new defence review, stocks in the sector jumped, with Babcock, one of the largest Ministry of Defence contractors, leading the way with a rise of 3.8%.
Germany’s sluggish economy received a boost on 4 June when a tax relief package worth €46 billion between 2025 and 2029 was unveiled. It led to the DAX rising 0.9%.
After weeks of tit-for-tat tariffs between the US and China, a trade deal was struck on 11 June. The US said a 55% tariff, inclusive of pre-existing levies, would be placed on China. The deal led to Chinese stocks rising. Indeed, the CSI 300 index, which tracks the largest stocks on the Shanghai and Shenzhen markets, was up around 0.8%.
Despite poor economic data from the UK, the FTSE 100 closed at a record high on 12 June. Among the top risers were health and safety device maker Halma (2.8%) and Tesco (1.8%).
In contrast, European markets dipped, with the DAX (-1.35%) and CAC (-1%) both falling.
The Iran-Israel crisis led to stock markets falling when they opened on 13 June. In London, the FTSE 100 was down 0.56% and almost every blue-chip share was in the red. It was a similar picture in Europe and the US, with indices dipping.
On 24 June, Donald Trump, president of the US, declared there was a ceasefire between Iran and Israel. It led to geopolitical fears easing and markets rallying around the world. However, some fears remain.
UK
UK economic data released in June was weak.
Data from the Office for National Statistics (ONS) shows the UK economy shrank by 0.3% in April. This was partly linked to trade tariffs as exports of UK goods to the US fell by around £2 billion.
In addition, the ONS revealed the rate of inflation remained above the 2% target at 3.4% in the 12 months to May. The news led to the Bank of England’s Monetary Policy Committee voting to hold interest rates.
However, think tank the Institute for Public Policy Committee said the central bank was harming households by not cutting the base interest rate. It also added that GDP was lower than expected because interest rates have been kept too high for too long.
A Purchasing Managers’ Index (PMI) involves surveying companies to create an economic indicator. A reading above 50 suggests a sector is growing.
In June, PMI readings for May show the manufacturing and construction sectors were contracting, but they had improved when compared to a month earlier, leading to hopes that a corner has been turned. In addition, the composite PMI, which combines service and manufacturing surveys, moved back into growth.
Europe
Eurostat figures show the rate of inflation across the eurozone fell to 1.9% in May, down from 2.2% in April, taking it below the European Central Bank’s (ECB) 2% target for the first time since September 2024.
In response, the ECB lowered its three key interest rates for the eighth time in the last 12 months.
There was also positive news from PMI data. The eurozone continues to hover just above the 50 mark that indicates growth, and German business activity returned to growth in June. As the largest economy in the eurozone, German activity is important to the bloc, and factory orders were also higher than expected.
Ireland is leading the EU in terms of growth. The country had expected its GDP to grow by 3.2% in the first quarter of 2025, but exceeded this with an impressive 9.7% boost. The jump was linked to strong exports in pharmaceuticals and other key sectors as companies tried to get ahead of tariffs.
US
In the 12 months to May 2025, the rate of inflation in the US increased slightly to 2.4% and remains above the Federal Reserve’s target of 2%.
A PMI conducted by the Institute of Supply Management shows the US manufacturing sector is slipping due to tariff uncertainty. Indeed, 57% of the sector’s GDP contracted in May, up from 41% in April.
The data from the service sector was also negative, with figures showing it contracted in May for the first time in June 2024, and new orders fell at the fastest rate since December 2022.
However, separate data suggests that businesses are feeling more optimistic about the future.
The National Federation of Independent Business’s Small Business Optimism Index increased three points in May. It was the first rise since Trump took office at the start of the year thanks to trade talks taking place between the US and China throughout June.
The US economy also added 139,000 jobs in May. The number was slightly higher than forecast and could suggest that businesses feel confident enough to expand their workforce.
Asia
Data from China showed it wasn’t immune to the effects of the trade war.
China’s National Bureau of Statistics data shows inflation was -0.1% in May as prices dropped. Deflation affecting the country highlighted the importance of the US and China reaching a trade deal.
In addition, manufacturing activity in May shrank at the fastest pace in two and a half years. Firms were hit by falls in new orders and weaker export demand. The PMI reading was 48.5, down from 50.4 in April.
Please note: This blog is for general information only and does not constitute financial advice, which should be based on your individual circumstances. The information is aimed at retail clients only.
The value of your investments (and any income from them) can go down as well as up, and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.
