Financial Markets Snapshot 2025
Gerry Caley
Senior Partner at GDA
January 2025 sees a global economy under considerable strain. While inflation is easing in most regions, and in the UK this has helped bring down the 10-year gilt rate which had seen the cost of borrowing soar, uncertainty remains elevated and regional growth disparities provide an overall subdued outlook. US policy is expected to have a significant impact on the global economy with the inauguration of Donald Trump and the policy pronouncements to follow, with respect to tariffs in the years ahead. The Chief Economists Outlook from the World Economic Forum reveals intensifying pressures on the world’s economic associations. As the world becomes more fragmented, this is expected to have an effect on goods and services, labour mobility, technology and data, and to a lesser degree in finance.
Europe continues to rank as the weakest region, with nearly three-quarters (74%) expecting weak or very weak growth. Meanwhile, China’s economic momentum is projected to slow amid subdued consumer demand and weaker productivity. However, in South Asia 61% of chief economists expect strong or very strong growth in 2025.
In the UK, core CPI dropped to 3.2% in December 2024, with services inflation falling from 5.0% to 4.4%. Part of this drop relates to volatile CPI basket items such as airfares, whose early sampling data did not fully capture the upturn in Christmas pricing. In the months ahead it looks like the UK will see higher utility bills, council tax charges, food costs and other prices linked to firms having to pass on the higher employment tax charges delivered in the most recent budget. Given the trajectory of inflation, the Bank of England will most likely look to ease policy and cut rates further at the February meeting of the Monetary Policy Committee. Growth in the UK also remains subdued and it will be important for the government to come up with some ideas in order to turn this around.
In the US, major changes are expected in areas such as trade, migration, fiscal policy and industrial policy with the incoming new administration, and this will have knock-on effects globally as we see a long-term shift from the current economic policy.
Expect 2025 to remain volatile in terms of financial markets and your investments. While this can create opportunities for investors, it can be difficult to manage a volatile investment market. Bonds are an attractive option and can form a useful part of a well diversified portfolio, and US smaller companies are also looking good, with the incoming US president’s stance on taxes and tariffs. This would favour domestic businesses over international conglomerates, and smaller companies are usually more domestically focused, though investing in them carries more risk. On the UK side, investing in renewables also has potential for good returns as there was a significant commitment by the Chancellor, Rachel Reeves, in the most recent budget.
This article isn’t personal advice. Remember all investments and any income they produce can fall as well as rise in value, so you could get back less than you invested. Yields are also variable and past performance isn’t a guide to future returns. If you’re not sure whether a course of action is right for you, ask for financial advice.
