This week’s briefing brings a mix of stories — from major hedge funds making bold bets on a single industry, to a single asset that appears to move in only one direction. We also take a closer look at two key developments shaping the UK economy.
Read on to find out more.
September brought a marked slowdown in the UK’s service sector, which grew at its weakest pace in five months. The S&P Global UK Services PMI slipped to 50.8 from August’s 16-month high of 54.2 - still technically showing growth, but only just. The reading was below economists’ expectations and reflected the hesitancy among both consumers and businesses to commit to spending ahead of the Budget.
Sectors such as restaurants, pubs and hotels reported a notable drop in activity, while many firms said corporate clients were deferring projects and households were cutting back on discretionary purchases. After a summer of optimism, new orders grew only marginally, and export sales swung from their fastest growth in a decade to outright decline.
The results underline how fragile the recovery remains. Elevated political uncertainty and a cautious outlook have once again taken centre stage, with analysts warning that the rebound seen earlier in the year may have been temporary. Yet there were exceptions, some firms reported that recent investment and expansion efforts had helped sustain output, even in a tougher climate.
As Tim Moore of S&P Global Market Intelligence put it, “This summer’s acceleration in output growth is now looking like a flash in the pan as elevated political and economic uncertainty has reasserted itself as a constraint on service sector performance.”
The slowdown in growth has serious implications for the Treasury, and this may have been a key driver behind the Bank of England’s cautious tone discussed. The Office for Budget Responsibility (OBR) is expected to deliver a £20 billion downgrade to the Chancellor’s fiscal outlook - largely due to, for once, weaker productivity assumptions that cut deeply into projected revenues.
For Rachel Reeves, the timing couldn’t be worse. Her upcoming autumn Budget is already under pressure from rising borrowing costs, a global trade war, and growing defence demands. Economists suggest that even a 0.1 percentage point reduction in productivity forecasts could cost the government £9 billion, leaving her with limited choices between borrowing more, cutting spending, or raising taxes.
The watchdog’s forecasts have long been criticised for optimism, and this recalibration brings them closer to the IMF and Bank of England’s more modest outlooks. Productivity growth, now expected to rise by just under 1% a year rather than 1.25%, will likely shrink Reeves’s fiscal headroom by around £20 billion. The result is what some analysts have called a £35–40 billion “black hole” in the national finances.
Andrew Wishart of Berenberg summed it up bluntly: “Parliament can’t really pass much in the way of spending cuts. If anything, any overshoot has to be met with tax hikes. There’s a risk that this is a repeated phenomenon.”
The uncertain fiscal picture in the UK mirrors a broader global unease that has driven some investors back toward traditional safe havens. Gold prices have surged above $4,000 (£2,980) per ounce for the first time, marking one of the strongest rallies since the 1970s. The spot price hit $4,031.54 in London trading - up more than 50% this year, after gains of 27% in 2024 and 13% in 2023.
Political instability in the US, France and Japan has added to the appeal. A prolonged US government shutdown, Trump’s renewed trade tariffs, and conflict in the Middle East and Ukraine have all seem to have pushed investors to seek stability. Gold exchange-traded funds (ETFs) have seen inflows of $64 billion so far this year, including a record $17.3 billion in September alone, according to the World Gold Council.
Central banks, particularly in China, have also been buying gold heavily, reinforcing its role as a reserve asset in uncertain times. Futures prices have climbed even higher than the spot rate - a sign of sustained demand. The last time this happened at such scale was during the inflationary 1970s, when rising debt and political instability similarly eroded faith in paper currencies.
Ray Dalio, founder of Bridgewater Associates, drew the comparison directly: “It’s very much like the early 70s … where do you put your money in? Gold is a very excellent diversifier in the portfolio. If you look at it just from a strategic asset allocation perspective, you would probably have something like 15% of your portfolio in gold.”
While investors worldwide are retreating to safety, some are doubling down on the future. Brookfield Asset Management has raised $20 billion for one of the world’s largest private funds dedicated to energy transition — a clear signal that long-term capital still sees opportunity in clean infrastructure.
The Brookfield Global Transition Fund II follows its $15 billion predecessor and has already invested over $5 billion in clean energy, including a $6.6 billion acquisition of French renewable developer Neoen. Major backers include the UAE’s Alterra with $2 billion and Norway’s sovereign wealth fund with $1.5 billion. Brookfield itself will contribute around a quarter of the total.
The fund has also taken over UK National Grid Renewables’ former US onshore business, now rebranded as Geronimo Power, and committed further funding to Everen — a joint venture in India focused on wind, solar and battery storage. Longer-term bets include nuclear and carbon capture technologies, areas Brookfield has previously explored through its investment in Westinghouse with Cameco.
Connor Teskey, Brookfield’s president, said the strategy is driven by the dual forces of electrification and the AI boom: “Energy demand is growing fast, driven by the growth of artificial intelligence as well as electrification in industry and transportation. Against this backdrop, we need an ‘any and all’ approach to energy investment that will continue to favour low carbon resources.”
As the week draws to a close, these stories together paint a picture of an economy and a market in transition. From Brookfield’s $20 billion commitment to clean energy, to investors piling into gold as uncertainty rises, capital is clearly searching for stability and opportunity in equal measure. Meanwhile, the UK’s fragile service sector and a looming fiscal downgrade from the OBR remind us how finely balanced the domestic outlook remains.
With the autumn Budget approaching quickly, all eyes will stay firmly on this event, where fiscal discipline and political confidence will need to work hand in hand - with hopefully, a clear strategy for genuine growth.