Geopolitical tensions simmer as new figures highlight the UK’s economic challenges.

Markets began the week analysing comments from Bank of Japan (BoJ) governor, Kazuo Ueda, who said Japan’s economy was progressing towards its inflation target on the back of rising wages and robust profits. Ueda acknowledged the external risks, such as president-elect Trump’s economic policy, but said the BoJ would not wait for all uncertainties to clear before raising interest rates.

Although disappointed by the lack of clear guidance, investors took his comments as a sign that a December rate hike was still on the table. That view was supported by data released on Friday showing that core inflation in October held above the central bank’s 2% target. The BoJ ended its negative interest rate era in March and last raised its short-term policy rate in July, to 0.25%.

An escalation in tensions between Russia and the US over Ukraine dented global risk appetite and saw investors flock to safe-haven assets on Tuesday. President Putin updated Russia’s nuclear doctrine after the US allowed American-made missiles to be fired deep into the country. European stocks hit a three-month low and US Treasury yields retreated sharply, after having been pumped up in the last couple of weeks by Trump’s tariff plans, stickier inflation readings and lowered rate cut expectations.

A rise in UK energy bills saw inflation rise to its highest level in six months in October, jumping to 2.3% from 1.7% in September and showing why the Bank of England (BoE) is having to move cautiously on interest rate cuts. Of concern to households and policymakers alike was that there was an unexpected clean sweep of higher headline, core and services inflation.

BoE governor, Andrew Bailey, dampened expectations of a rate cut next month, saying that a gradual approach to easing was sensible given the unknown impact on inflation of the rise in employer National Insurance contributions.

The BoE forecasts that the Budget measures will see consumer price inflation still at 2.7% by the end of next year and that it will be mid-2027 before it falls below the 2% target; a full year later than the Bank expected in August.

But inflation wasn’t the only piece of disappointing economic data. Pre-Budget fears were cited as the cause of a bigger-than-expected drop in UK retail sales in October. The Office for National Statistics reported that clothing sales were “notably poor”, as the mild weather delayed the purchase of warmer attire.

The scale of the challenge faced by chancellor Rachel Reeves was also underlined by news that the government borrowed more than expected in October. The implementation of the above-inflation pay increases in the public sector, which was one of the new government’s first policy announcements, added 13.5% to staff costs.

Economic growth is critical to the government’s spending ambitions, yet the week ended with news that plans to increase taxes on businesses contributed to the first contraction in UK private sector activity in 13 months. The same report also showed employers cut staffing levels for the second successive month.

Investors were keenly awaiting the third-quarter earnings report from Nvidia, the world’s most valuable company, for clues as to whether the euphoria over artificial intelligence (AI), which has driven much of the markets’ rally this year, could be maintained.

Despite delivering above-estimate revenue and profits, Nvidia’s fourth-quarter growth forecast failed to meet the lofty expectations of investors. Nvidia indicated that revenue growth would slow to around 70% from 94% in the third quarter; a figure that shows demand for the company’s AI chips remained strong and one that suggests the AI tailwind could continue to help drive equities next year.

Global stocks edged higher on Thursday despite Nvidia’s forecast dragging down the technology sector. Tech stocks were also dented by a demand from the US Department of Justice that Alphabet must sell Chrome to end Google’s search monopoly. It’s reckoned that Google accounts for 90% of all online searches globally.

Geopolitical concerns kept markets wary, but didn’t prevent global stocks ending the week in positive territory, as investors mulled over president-elect Trump’s likely policies and their impact on the US economy. One scenario is that his policy ambitions will be moderated to avoid inflation picking up, as unhappiness with high inflation was one of the key reasons he was elected.

Wall Street’s leading indices notched weekly gains, while Europe’s Stoxx 600 snapped four straight weeks of losses. The FTSE 100 had its best week in six months as a weaker pound boosted exporters.

“We think that with economic data remaining upbeat, the Fed will probably deliver the last cut in the mini-cycle for the time being, in either December or January, then signal that rates are on hold for a period,” suggested Mark Dowding of BlueBay Asset Management. “This will conveniently allow Powell and colleagues to assess the actions of Trump’s team before taking additional action, as we progress through 2025.”