Written Commentary
The Ghost in the Machine Q4 2025
December 22, 2025
Digesting UK and German GDP, China Credit Aggregates and TSMC earnings, looking ahead to US weekly jobless claims, NY and Philly Fed Manufacturing surveys, more US bank earnings, slew of central bank speakers.
- UK GDP: unwind of JLR cyber attack impact gives manufacturing a large boost, imparts slightly less urgency for further rate cut, but likely rapid fall in inflation and weak labour demand should outweigh noisy GDP readings
EVENTS PREVIEW
Geoeconomic and geopolitical tensions remain front and centre, even if the outcomes of many of these bi- or multilateral tensions remain a case of looking through a glass darkly. UK monthly GDP and activity indicators, China credit aggregates, German 2025 GDP and US weekly jobless claims and NY & Philly Fed Manufacturing surveys top the day’s statistical schedule, with Japan’s PPI to digest. The Bank of Korea left rates unchanged as expected, with a weak KRW suggesting little scope to cut rates further, with a good number of G7 central banks speakers on tap, as the Bank of England publishes its quarterly Bank Liabilities and Credit Conditions surveys. Financials again dominate the US corporate earnings run, as results from TSMC are digested. But as noted, national and geopolitical risks continue to be key in terms of market sentiment, as the sharp oil price volatility in recent days attests.
** U.K. – November GDP and activity indicators **
The unwind of the drag from the Jaguar Land Rover cyber-attack shutdown proved to be the decisive factor in the better than expected 0.3% m/m increase in monthly GDP, prompting a 2.1% m/m surge in Manufacturing Output.
Though a rebound in Professional Services (adding 0.15 ppt) and Information & Communication (adding 0.1 ppt) also helped to boost the Index of Services (0.3% m/m), helping to offset a drag from Construction and Net Exports (primarily gold related in m/m terms).
As such, Q4 GDP will expand modestly, countering prior expectations of a flat reading or a small decline. It eases the pressure for a rapid further rate cut, though with inflation set to fall faster than the BoE had been expecting, labour demand very weak, and the BoE likely to look through the past few months GDP data as statistical noise, a February rate cut should remain on the table, even if H1 2026 GDP should get a boost from government spending. At the end of the day, the BoE’s mandate is about inflation, and as MPC’s Taylor noted yesterday, the diversion of China exports is proving to be deflationary.
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