UK markets opened the first week of September 2025 with a flurry of major developments, as investors grappled with record bond yields, a volatile pound, and a string of headline-making corporate moves. The FTSE 100 edged higher, buoyed by defence and mining stocks, even as underlying market sentiment remained fragile amid ongoing political and economic uncertainties.
On September 2, 2025, UK 30-year bond yields surged to their highest level since 1998, marking a 27-year high and stoking concerns about Britain’s fiscal credibility. The British pound, meanwhile, slipped below $1.34—a move that underscored investor wariness, according to Bloomberg. Despite these jitters, asset managers like Vanguard saw opportunity: “For all the fears around UK fiscal and the recent political developments, the book for the new 10y gilt is over 10x oversubscribed today,” said Ales Koutny, head of international rates at a major US asset manager, as reported by Bloomberg. Koutny added that the jump in long-term gilt yields was “more contained than the repricing in other countries,” pointing to even sharper moves in global bond markets.
Vanguard’s appetite for UK gilts comes as the repricing has made them more attractive than their German and French counterparts, both of which are also wrestling with political and fiscal concerns. Naomi Tajitsu, writing for Bloomberg, noted that the UK’s move, while significant, has been less dramatic than elsewhere—a small comfort for policymakers facing growing pressure to restore market confidence.
Political maneuvering in Westminster added another layer of complexity. A recent prime ministerial reshuffle saw Darren Jones move to No 10 to oversee the delivery of government priorities, with Minouche Shafik, former deputy governor of the Bank of England, stepping in as economic adviser to the prime minister. However, the market’s reaction was less than enthusiastic. Simon French, chief economist at Panmure Liberum, observed that “bond yield spreads between the UK and other G7 countries are heading in the wrong direction.”
Meanwhile, the FTSE indices managed to eke out modest gains. The FTSE 100 was up 13 points, or 0.1 percent, at 9,200.70, while the FTSE 250 rose 0.08 percent to 21,622.37. Defence stocks led the charge, thanks largely to a landmark £10 billion contract for BAE Systems to supply anti-submarine warships to Norway. The deal, the largest warship export in UK history, will see five Type 26 frigates built in Glasgow and delivered from 2030. BAE Systems’ shares rose 2.93 percent in early trading, while Babcock International gained 2.76 percent. Mining stocks such as Fresnillo and Endeavour Mining also climbed on the back of rising precious metal prices.
Corporate news was equally brisk. McLaren Racing’s Middle Eastern backers, Bahrain’s Mumtalakat and Abu Dhabi’s CYVN Holdings, are on the verge of buying out minority stakeholders in a deal valuing the Formula 1 team at over $3 billion, according to Sky News. An announcement could come as soon as Tuesday, capping a remarkable run for McLaren, whose driver Oscar Piastri won the Dutch Grand Prix and now leads the world championship, with teammate Lando Norris in second place.
In the pharmaceutical sector, Shaun Grady, chairman of AstraZeneca UK, was appointed chairman of the BioIndustry Association, succeeding Dr Daniel Mahony. Grady’s appointment comes as drug companies warn they may move trials and investment out of the UK unless the government increases NHS spending on medicines. Health Secretary Wes Streeting, for his part, has pushed back, arguing that industry demands are unaffordable.
Elsewhere, shares in IT services provider Kainos soared 20.08 percent to 849p after the company said it expected revenues for the year ending March 2026 to be at the upper end of consensus forecasts. The FTSE 250 pizza delivery group Domino’s Pizza announced a £20 million share buyback, reaffirming its annual profit forecast despite warning of higher costs and subdued demand.
There was also movement in the financial technology sector. London-based Finastra is reportedly considering a sale of its Middle Eastern and Asian core banking unit in a deal that could fetch more than $1 billion, Reuters reported. The company, owned by Vista Equity Partners, is working with advisers as it weighs its options, though discussions are still at an early stage.
In the manufacturing sector, the UK’s woes continued. The S&P Global UK manufacturing PMI fell to 47 in August, down from 48 in July, marking the eleventh consecutive month of contraction. Matt Swannell, chief economic adviser to the EY Item Club, told The Times: “August’s final S&P Global manufacturing survey provided further signs that the sector appears likely to continue to underwhelm … The weaker outturn reflected another modest decline in production, while new orders deteriorated further as downbeat customer confidence and elevated trade policy uncertainty reportedly weighed on demand both domestically and in key export markets.”
By contrast, the eurozone’s manufacturing sector showed signs of life. The HCOB Eurozone Manufacturing PMI rose to 50.7 in August, its highest in over three years, with Greece and Spain leading the recovery. Germany’s PMI hit a 38-month high of 49.8, offering a glimmer of hope for Europe’s largest economy, which shrank 0.3 percent in the second quarter. “The recovery is real but remains fragile … domestic orders have risen and are offsetting the weakening demand from abroad,” said Cyrus de la Rubia, chief economist at Hamburg Commercial Bank.
On the housing front, UK mortgage approvals reached a six-month high in July, with 65,352 mortgages approved, according to Bank of England data. Paul Dales, chief UK economist at Capital Economics, remarked that the uptick “is encouraging as it appears consistent with house prices rising at an annual rate of around 4 percent in six months’ time.” However, Nationwide reported a 0.1 percent month-on-month dip in house prices in August, with annual growth softening to 2.1 percent from 2.4 percent in July. “The relatively subdued pace of house price growth is perhaps understandable, given that affordability remains stretched relative to long-term norms,” said Robert Gardner, Nationwide’s chief economist.
In the energy sector, Norwegian state-owned Equinor announced its support for Orsted’s $9.4 billion rights issue, planning to subscribe for new shares worth up to $941 million. Equinor expressed confidence in Orsted’s business and the competitiveness of offshore wind, signaling a potential for closer industrial collaboration.
Tesla, meanwhile, faced more headwinds in Europe. Sales of new Teslas dropped 42 percent year-on-year in Denmark and a staggering 84 percent in Sweden in August, according to Mobility Denmark and Mobility Sweden. The decline adds to pressure on Elon Musk as the company contends with fierce competition from Chinese electric vehicle makers and a backlash against Musk’s political stances.
Royal Mail reported its first underlying annual profit in three years, posting £12 million for the year ending March 2025, following Czech billionaire Daniel Kretinsky’s £3.6 billion takeover of International Distribution Services. The wider group recorded a 4.8 percent rise in revenue to £13.1 billion.
With global markets watching every move, the UK’s economic landscape remains a patchwork of cautious optimism and persistent uncertainty. Investors, policymakers, and business leaders continue to navigate a rapidly evolving environment—one where every headline can shift sentiment in a heartbeat.
