Not so scary: Why this Halloween economy delivers more suspense than horror
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Article Type
Market Updates
Topic
Opinion
Published
October 31, 2025
Read time
5 mins
Author
Stephen Jones
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As the clocks fall back and the fog rolls in, the financial world finds itself wandering through a haunted house of economic uncertainty. Lurking in the shadows, an overstretched UK budget that echoes like rattling chains, global growth that flickers on off like a candle and the spectre of geopolitical tensions that refuses to be exorcised. Yet amid the shadows, there are glimmers of light: central banks cutting interest rates, AI Investments gaining momentum and credit markets that, while jittery, are some way from turning into a full-blown fright fest. As the nights grow longer and the uncertainty deepens, investors need to stay sharp as they navigate the fog.

 

Budget ghosts haunt the UK economy

In the UK, the Chancellor’s Budget is the main decoration in this year’s economic haunted house. The UK’s public finances are creaking like the floorboards of a Victorian manor: borrowing is running £7.2bn above forecasts from the Office for Budget Responsibility (OBR), and the cupboard labelled “headroom” is as bare as a vampire’s blood bank. While recently better than expected inflation has conjured up hopes of Bank of England rate cuts and gilt yields have moved off their highs, the relief may prove too fleeting to exorcise the OBR’s productivity projections for the Budget.

 

Tax rises are coming like a cold, relentless winter, the icy hand of the Grim Reaper on the shoulder of the British taxpayer. The government faces a classic Halloween dilemma: raise taxes and risk summoning the ghost of poor growth or keep spending and risk awakening the bond market werewolves. Either way, the next Budget is likely to deliver some near-term jump scares for households and investors alike.

 

Global growth flickers in the wind

The UK’s budget drama unfolds against a backdrop of broader global uncertainty. Across the globe, the spirit of growth is guttering like a lantern in a stiff Autumn breeze. Purchasing Managers Indices across the Eurozone have picked up, suggesting some improvement in activity and confidence in early Autumn, but readings of future output expectations are stuck at a five-month low, haunted by trade tensions and a strong euro. Germany has recently emerged from the economic crypt with a positive surprise, while France remains spooked by political instability. The UK’s own PMIs have improved, but momentum into the budget is weak, and the economy is tiptoeing through a graveyard of low demand and cautious consumers.

 

Meanwhile, the US economy continues to twitch with life; S&P 500 earnings are beating expectations and tech giants lead the charge. Yet even here, the momentum has slowed, valuations are vexing, and the rate of upward earnings revisions is coming off highs – a sign that the market’s optimism could be due for a fright night of its own into 2026.

 

Geopolitical risks, trade wars, and tariff terrors are never far from the surface. The multipolar world is creating new monsters: supply chains are being rewired, basics like steel and chemicals face structural headwinds, access to vital rare earth elements and the threat of new tariffs could send shivers down the spines of global investors.

 

Credit markets are not overrun by zombies

Despite the scary headlines, the credit markets are not (yet) overrun by zombies. Default rates in high yield bonds are expected to remain benign – 2-3% in the US, Europe, and Asia for 2026 – though there are higher risks lurking in the shadows of private credit and leveraged loans, where leverage is higher and transparency lower. The weakest exposure links are in US retailers, media, and healthcare, European chemicals, and Asian real estate names, but for now, the system overall is not burdened by excessive debt and liquidity remains healthy. The ghosts of 2008 are still locked in the attic.

 

And the central banks’ magic wand is there to ward off the economic vampires. After a period of higher interest rates, the Bank of England and the US Federal Reserve are both poised to cut rates in 2026, with the possibility the ECB may tweak EU rates lower having already reduced the cost of borrowing money. This should help keep the financial system liquid and support both companies and consumers as they navigate the haunted maze of the coming year.

 

AI lights the way through the fog

It’s not all doom and gloom. The deployment of capital into AI solutions at massive scale is the most exciting development since the invention of the pumpkin spice latte. Yes, there are risks, AI will disrupt jobs, concentrate power, and create new vulnerabilities, but its potential to boost productivity is real and mouthwatering. Productivity gains, advances in medicine, science, new materials, space, along with breakthroughs in energy use and conservation could transform the economic landscape, turning today’s haunted house into tomorrow’s smart home.

 

In the US and elsewhere, a renewed focus on deregulation is another reason for optimism. Companies are not excessively burdened by debt, and liquidity remains good. The financial system, for all its cobwebs, is still functioning well, and the risk of a systemic meltdown looks remote.

 

So, as you carve pumpkins and stock up on sweets, remember: the economic outlook may be haunted by ghouls and spooks, but there are plenty of treats in the bag. In the UK tax rises are coming like winter with some near-term scares, but central banks are ready to cut rates, AI is poised to revolutionize productivity, and the system is not (yet) overrun by monsters.

 

The message clears through the fog: keep your wits about you, don’t be spooked by every shadow, and remember that even in the darkest night, there’s always the promise of a sweet sunrise.

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Author

Stephen Jones
Global Chief Investment Officer
Stephen Jones is Aegon Asset Management’s global chief investment officer.  
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