In the US, growth rebounded in August with Q2 GDP rising 3.3% annualised after a 0.5% Q1 contraction. The upgrade from 3.0% reflected stronger investment and consumer spending, partly offset by softer government outlays and higher imports. Headline CPI held steady at 2.7% in July, while core inflation rose to 3.1% which resulted in the Fed keeping rates at 4.25–4.50% for a fifth meeting.

Europe grew slower in Q2, with GDP rising just 0.1% quarter-on-quarter after increasing by 0.6% in Q1, its weakest pace since late 2023. The moderation reflects earlier activity pulled forward by tariff concerns and lingering uncertainty around US trade policy. Performance varied with Germany and Italy contracting with France, Spain and several smaller economies improving. Inflation remained on target at 2.0% in July, with core inflation at 2.3%. Against this backdrop, the ECB kept its policy rates unchanged, signalling a wait-and-see approach after eight rate cuts.

UK growth moderated but beat forecasts in Q2 2025, with GDP up 0.3% in Q2 after a 0.7% rise in Q1. The BoE delivered a 25bp cut to 4.0%, signalling gradual, data-dependent easing. August PMIs underlined a two-speed UK economy. On the one hand, manufacturing output fell as weak new orders met subdued global demand amid tariff uncertainty with firms reporting faster input cost growth and logistics bottlenecks. Services told a different story with the PMI rising for the fourth straight month and the fastest in a year, fuelled by renewed new orders at home and abroad. Investors, however, are concerned about the UK’s fiscal outlook, and this is reflected in the 30-year gilt yield reaching 5.6%, the highest since the late 1990s.

Global equity markets continued to demonstrate resilience in August, with steady gains. The MSCI World Index rose 2.49%, supported by broad based strength across developed markets. In the US, the S&P 500 advanced 1.91% and the Nasdaq up by 1.58%, reflecting sustained investor interest in technology and growth-oriented sectors. Closer to home, large-cap UK equities also delivered positive returns, with the FTSE 100 rising 0.60%. The impact of the recent surge in 30-year gilt yields, which tends to compress equity multiples, especially for smaller companies, was felt by the FTSE 250 and Small Cap indices, which posted negative returns of −1.63% and −2.34% respectively.

In line with broader UK small caps, our NAV total return fell by 2.81% net of fees and expenses. We added to our positions in Auto Trader, Cake Box Holdings, PayPoint and Spectra Systems, businesses we believe combine good economics with sensible prices. We reduced our holding in S&U and exited Alpha Group after it received a takeover offer from US-based Corpay.

During the month, YouGov issued a full year trading update indicating FY25 performance was in line with expectations, with Data Products supported by stable renewals and new customer wins. Other portfolio holdings, including FeverTree, Impax, PayPoint and Rightmove, continued share repurchases which, when done below intrinsic value raise our share of future earnings. The largest contributors to performance were S&U plc, Treatt plc and YouGov, all rising over 5%. Detractors from performance included AEWU REIT, Fever-Tree Drinks and Games Workshop.