Concerns around potential trade wars following President Trump’s inauguration weighed on investment markets in January 2025, but there was positive news too. Read on to discover some of the factors that may have affected the performance of your investments.
Keep in mind that short-term market movements are part of investing and taking a long-term view is an important investment strategy for many people.
UK
Headline figures were positive for the UK.
UK inflation fell to 2.5% in the 12 months to December 2024, data from the Office for National Statistics (ONS) shows. According to the Guardian, there’s a 74% chance the Bank of England (BoE) will cut interest rates in February as a result.
The ONS also reported the UK economy returned to growth in November 2024, as GDP increased by 0.1%. While it’s only a small rise, it follows three months of stagnation.
What’s more, the International Monetary Fund expects the UK to grow by 1.6% in 2025 and be the third-strongest G7 economy in terms of growth.
In encouraging news for the chancellor, at the World Economic Forum, PwC revealed that the UK is the second-most attractive country for investment, only falling behind the US. It marks the highest rank for the UK in the 28 years PwC has carried out the survey.
Sharp rises in borrowing led to the UK bond market making headlines.
On 8 January, UK government debt hit its highest level since the 2008 financial crisis, just a day after 30-year bond yields were at the highest level since 1998. Bonds rising could lead to mortgage lenders increasing rates and could affect the value of pensions, particularly those who are nearing retirement and are more likely to hold bonds.
Markets calmed down the following day but continued to experience ups and downs throughout January.
After the turmoil in the bond market, the FTSE 100 – an index of the 100 largest companies listed on the London Stock Exchange – was down 0.9% on 10 January. The biggest faller was financial group Schroders, which saw a dip of 4.3%.
Yet, just weeks later, the FTSE 100 hit a record high and exceeded 8,500 points for the first time on 17 January. The boost of around 1% was linked to speculation that there would be several interest rate cuts this year thanks to falling inflation.
However, many businesses still aren’t confident.
According to the British Chambers of Commerce (BCC), confidence among British businesses fell to the lowest level since former prime minister Liz Truss’s mini-Budget in September 2022. The pessimism was linked to chancellor Rachel Reeves’s £40 billion tax increases, which have placed a large burden on businesses. The BCC survey suggests 55% of firms plan to raise prices as a result.
Similarly, a survey from the BoE suggests more than half of UK firms plan to cut jobs or raise prices in response to employer National Insurance contributions increasing in April 2025.
The effects of the chancellor’s Budget were also evident in S&P Global’s Purchasing Managers’ Index (PMI).
The index fell to an 11-month low in December and into contraction territory. Rob Dobson, director at S&P Global Market Intelligence, noted there were also sharp staffing cuts as some companies acted now to “restructure operations in advance of rises in employer National Insurance and minimum wage levels”.
Europe
Data paints a gloomy picture for the eurozone.
As expected, following an interest rate cut by the European Central Bank to boost the flagging economy, inflation across the eurozone increased. In the 12 months to December 2024, inflation was 2.4%.
Germany – the largest economy in the bloc – reported GDP falling 0.2% in 2024 when compared to the previous year, and it follows a decline of 0.3% in 2023.
According to an index from sentix, the challenges Germany is facing are negatively affecting investor morale across the eurozone. Indeed, investor confidence fell to a one-year low at the start of 2025. Germany is set to hold a snap general election in February, which could ease some of the uncertainty investors are feeling.
PMI figures from the Hamburg Commercial Bank fail to offer investors optimism.
While the eurozone service sector improved, it was still in decline at the end of 2024. In addition, the construction sector continues to contract and new orders fell markedly, suggesting that a recovery isn’t on the horizon.
US
Dominating the headlines in the US in January was the inauguration of Donald Trump, which took place on 20 January. Trump will serve a second term as US president and promised a “golden age” for America in his inaugural address.
In the first days of his presidency, Trump continued to make similar trade threats to those he made during his campaign. He suggested a 10% tariff on Chinese-made goods arriving in the US could be implemented as early as 1 February 2025. Trump also hinted that he was considering levies on imports from the EU, as well as a potential 25% tariff on the US’s two largest trading partners, Mexico and Canada.
According to the US Bureau of Labor Statistics, inflation increased to 2.9% in the 12 months to December 2024, up from 2.7% a month earlier. The inflation data could mean the Federal Reserve is less likely to cut interest rates in the coming months.
Indeed, on 13 January, Wall Street fell when it opened as traders expect interest rates to remain where they are.
Technology-focused index Nasdaq fell 1.3% and the S&P 500, which tracks the 500 largest companies listed on stock exchanges in the US, lost 0.8%. Pharmaceutical firm Moderna experienced the largest slump when share prices fell 24% after the company cut its outlook due to shrinking demand for its Covid-19 vaccine.
Markets faced more turmoil on 27 January. The emergence of a low-cost Chinese AI model, DeepSeek, led to concerns about the sustainability of the US artificial intelligence boom.
According to Bloomberg, shares in US chipmaker Nvidia fell by 17% and erased $589 billion (£473 billion) from the company’s market capitalisation – the biggest in US stock market history.
Other US technology giants saw share prices fall too. Microsoft, Meta Platforms and Alphabet, which is the parent company of Google, saw losses between 2.2% and 3.6%. AI server makers saw even sharper drops, with Dell Technologies and Super Micro Computer sliding by 7.2% and 8.9% respectively.
PMI data from S&P Global indicates business could pick up at the start of 2024. In fact, the service sector posted its biggest growth in output and new orders in December 2024 since May 2022. The jump was linked to firms anticipating more business-friendly policies under the Trump administration.
Asia
Threats of trade tariffs from the US in 2025 meant Chinese manufacturers rushed to fill orders at the end of 2024. Indeed, exports increased by 10.7% in December 2024 when compared to a year earlier, according to official customs data. With exports outpacing imports, China’s trade surplus was just under $1 trillion (£0.8 trillion) in 2024.
China’s National Bureau of Statistics also reported the economy hit its official target of growing by 5% in 2024.
Chinese manufacturer BYD could be on track to overtake US technology giant Tesla this year. BYD revealed it sold 1.76 million battery electric cars in 2024 falling only behind Elon Musk’s company, which sold 1.97 million. In fact, when including hybrid vehicles, BYD surpassed Tesla.
However, the new year didn’t start positively in the Chinese stock market. On 2 January, weak manufacturing data contributed to a sell-off of Chinese stock. The Chinese Stock Exchange fell by 2.7%, and the Chinese yuan also fell to a 14-month low against the US dollar.
Please note
This blog is for general information only and does not constitute financial advice, which should be based on your individual circumstances. The information is aimed at retail clients only.
The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.
