The past year has been rewarding for investors, as the economy and financial markets have performed exceptionally well. However, as 2025 begins, new challenges are on the horizon. Even though market risks have increased, the stock markets are expected to perform moderately in 2025. As far as the economy is concerned, the USA stands out clearly from the rest and continues to be ahead of the game.
Global growth forecast
On Friday, the International Monetary Fund released its updated growth forecast for the global economy, which is expected to grow by 3.3% in 2025, but with increasing divergences across countries and regions. Among the major world economies, the United States is experiencing the most notable change, with growth expected at 2.7% this year, thereby widening the gap with other advanced economies, particularly the European Union. The weak growth in the Eurozone, on the other hand, seems to be continuing for the time being — after problems on the supply side, demand is weakening.
Growth expectations for the UK
The UK economy is forecast to grow modestly in the first quarter. The Bank of England predicts a GDP growth rate of around 1.5% in 2025. This follows a year of stabilisation following inflationary pressures in 2024.
The services sector forms the backbone of the UK economy and is set to continue its recovery. However, manufacturing output remains uncertain, with global supply chain issues still affecting production. Investors should be cautious about companies with high exposure to energy costs or import dependencies.
Inflation and monetary policy
With inflation decreasing and interest rates beginning to fall, attractive opportunities and riskier situations will present themselves to investors. The U.S. Federal Reserve is anticipated to maintain current interest rates during its January meeting, with potential rate cuts projected for March 2025. According to experts, inflation in the US will remain above the Fed’s target. At the same time, the European Central Bank (ECB) is likely to pursue a looser monetary policy to counteract the weak growth in the Eurozone, and four interest rate cuts are expected by the ECB in 2025.
The Bank of England (BoE) is also expected to cut interest rates this year, but market experts disagree over how often and when. Interest rates are currently at 4.75%, and it is unknown if the BoE will cut rates in February. If five rate cuts happen this year, it will result in a base rate of around 3.5%.
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Global trade and policy implications
At the end of 2024, the UK officially became the 12th member of the CPTPP, or Comprehensive and Progressive Agreement for Trans-Pacific Partnership. New trade agreements with the United States are also expected to take shape in early 2025. These agreements could boost sectors like technology, pharmaceuticals, and green energy.
However, geopolitical tensions, particularly in Europe and the Middle East, may impact commodity prices, especially energy. UK investors should watch closely how these developments influence the FTSE sectors, including oil and gas, and seek diversification into less volatile asset classes.
Property market trends
The UK property market started the new year on a promising note, with the average price of a property coming to market rising by 1.7%. As affordability constraints ease — driven by falling interest rates and rising real wages — banks are expected to increase mortgage lending in 2025. Some major lenders have already announced marginal rate reductions, a trend that may continue throughout the year.
For property investors, this could present an opportunity to acquire assets, particularly in areas outside London where prices have softened. However, buy-to-let investors should be mindful of rising regulatory costs and planned tax increases set to take effect in April.
Equity market predictions
The FTSE 100 and FTSE 250 will likely see modest growth in the first quarter. The FTSE 100, with its heavy exposure to multinational companies, could benefit from a stabilising pound and improving global trade conditions. In contrast, the FTSE 250, which focuses on domestic companies, may be more vulnerable to slower consumer spending.
Technology and renewable energy stocks are expected to perform well as the government continues its push towards net-zero goals. The financial services and healthcare sectors may also remain resilient due to steady demand.
Cryptocurrency and digital assets
Cryptocurrencies remain volatile, but institutional adoption in the UK is rising. The Financial Conduct Authority (FCA) is expected to roll out clearer guidelines for cryptocurrency exchanges and investment products early in 2025. These regulations aim to enhance investor protection, combat fraud, and ensure that crypto trading platforms in the UK meet high transparency and security standards. With improved regulations, the crypto market is maturing into a more structured investment space in the UK. Still, it offers lucrative opportunities to investors with a high-risk tolerance and robust market knowledge.
Gold will remain strong in 2025
A look at the development of gold prices shows that the precious metal was very popular with investors last year. Gold should continue to shine in 2025, as the demand remains high due to the increasing geopolitical uncertainties caused by the US-China trade war and the Russia-Ukraine conflict. Generally, gold makes sense in the portfolio as part of a diversified asset allocation.
2025 investment landscape
Investment conditions in 2025 will differ from 2024. UK investors will experience mixed signals in the first quarter. Economic growth, stabilising inflation, and evolving trade relationships offer promise, while geopolitical uncertainties will persist, requiring attention and portfolio diversification.
Adopting a long-term investment approach is strongly recommended in 2025. Diversifying your portfolio and making informed tax decisions can enhance profitability and help mitigate risks. By keeping up with the latest developments, investors can remain confident that their informed decisions will help them achieve their financial goals in 2025.
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