Global equity markets concluded 2025 on a strong footing, recording an eighth consecutive month of gains and finishing the year close to all‑time highs. Much like the preceding year, a combination of supportive economic data and contained inflation underpinned investor confidence.
While price pressures remain above central bank targets, the direction of travel has been sufficiently reassuring to allow policymakers to continue their rate-cutting cycle throughout 2025. In December, both the US Federal Reserve (Fed) and the Bank of England (BoE) reduced interest rates by 0.25%.
In the UK, the BoE lowered interest rates to 3.75% following a third consecutive monthly decline in inflation, with headline prices rising 3.2% year‑on‑year in November. Although inflation remains above its 2% target, the central bank signalled confidence that the future path of inflation allows for an easier monetary policy stance.
Simiarly in the US, the Fed’s December cut marked its third reduction of the year. Inflation has been on a downward trajectory, easing to 2.7% in November. This is paired with a healthy, albeit softening, labour market with unemployment at 4.6% – a four-year high.
Importantly, economic growth remained robust, with the US economy expanding at an annualised rate of 4.3% in the third quarter. This combination of resilient growth and gradually easing inflation provided a supportive backdrop for risk assets.
Looking ahead, monetary policy remains a key variable for investors to monitor. Fed Chair Jerome Powell’s term concludes in May, with his successor due to be announced this month. The next Chair will play a vital role in influencing the pace of rate cuts in the second half of the year and beyond.
The value of investments, and the income from them, can fall as well as rise and you may not get back what you put in. You should continue to hold cash for your short-term needs. Past performance should not be taken as a guide to future performance.
