Economic review for the week ended June 27, 2025

Despite intense pressure from President Donald Trump to lower interest rates, the US Federal Reserve indicated the central bank is likely to remain on hold for the time being. Consequently, US Treasury yields were lower, hovering around 4.2% mark as traders kept an eye on the fragile ceasefire between Iran and Israel and geopolitical tensions.

Powell noted that economic effects of policy changes, including increases in tariffs on US trade partners, remain uncertain and continued to stress that is important to keep long-term inflation expectations well-anchored to prevent a potential one-time increase in the price level from becoming an ongoing inflation problem.

Prevailing uncertainties remain but the US reported strong output growth. However, the pace of expansion has moderated, as indicated by the latest Purchasing Managers’ Index (PMI) data. Although this suggests that the economy continues to be resilient, the outlook remains uncertain, compounded with inflationary pressures and expectations. In fact, US May year-on-year PCE price index came as expected at 2.3%, marginally higher than April.

Meanwhile, British business activity grew slightly in June, supported by a rise in new orders for the first time this year, according to a survey released last Monday. However, the pace of job cuts accelerated and concerns about the conflict in the Middle East weighed on the sentiment. The S&P Global UK Composite PMI index, which measures private sector performance, edged up to 50.7 from 50.3 in May, inching further above the 50.0 mark that indicates growth. Analysts had expected a rise to 50.5.

While the services sector continued to expand moderately, a solid decline was reported in manufacturing production. The flash services PMI rose to 51.3 in June from 50.9 in May, slightly above the forecast of 51.2. Meanwhile, the flash manufacturing PMI climbed to a five-month high of 47.7, exceeding expectations of 46.9 and up from 46.4. Firms reported improved order books and a partial recovery in client confidence as drivers of increased activity. However, global trade tensions and rising geopolitical uncertainty were noted as growth headwinds.

Finally, across the eurozone, private sector activity showed minimal improvement in June, with the PMI data pointing to stagnation in both services and manufacturing, raising concerns about the region’s economic recovery. The flash eurozone Composite PMI for June held steady at 50.2, unchanged from May and just above the 50-point threshold that separates growth from contraction. This was slightly below the expected reading of 50.5. Manufacturing activity remained flat, with the PMI registering 49.4, missing the forecast of 49.6. The services PMI rose to 50.0 from 49.7, in line with expectations, indicating a marginal return to growth.

This article does not constitute legal and/or financial advice and is being issued for information purposes only by Bank of Valletta plc, 58, Zachary Street, Valletta. Bank of Valletta is a public limited company regulated by the MFSA and is licensed to carry out the business of banking and investment services in terms of the Banking Act (Cap.371 of the Laws of Malta) and the Investment Services Act (Cap.370 of the Laws of Malta).