Scott Kingsley, Senior Wealth Advisor
From the tax hikes of Labour’s Budget to the eventual steadying of interest rates and inflation, 2024 was fascinating from a financial perspective. Of course, there was also Donald Trump’s re-election, which will have a huge impact on markets in the year ahead.
If 2024 has taught us anything, it’s that economic resilience and a diverse investment strategy are crucial, and understanding the broader societal picture is key to planning your finances.
Interest rates should continue to fall in the first half of the year as they did in the latter half of 2024. In the UK, rates could fall to 3.75% by the end of 2025 and as low as 3.5% in early 2026.
The IMF predicts a global inflation rate of 4.3% in 2025, with some larger economies closer to 2%. This is relatively low but still high compared to pre-pandemic levels. The OBR predicts that the UK’s 2025 rate of inflation will be more like 2.6%, lower than other G7 countries due to domestic pressures.
Global GDP could grow by around 4.1% in 2025, higher than 2024’s 2.9%, 2023’s 3%, and 2022’s 3.5%.
America’s GDP could grow by 2.5%, which would mark an increase of 1.5% GDP growth in 2024 and is similar to growth in 2022 and 2023.
In Europe, financial growth is set to stagnate at around 1.5% due to external and structural challenges. However, a focus on emerging markets like sustainable technology is a cause for optimism towards the end of 2025 and into the second half of the decade.
The OECD predicts the UK economy will grow by 1.7% in 2025, although others predict something closer to 2.5% or more. This represents a significant increase compared to 2023 and 2024, where GDP grew by 0.5% and 0.6% respectively.
As we all know by now, Labour’s Budget resulted in pension savings being subjected to IHT. There was also a CGT increase to try and reduce the deficit.
These measures have had negative impacts on estate planning and investment strategies, and potentially stricter anti-avoidance measures will have knock-on effects on wealth management in the year ahead. There’s also talk of Income Tax increases for top-rate payers which will be another cause of concern in 2025.
Businesses will feel the strain if Corporation Tax is increased to 26% - 28%, as some experts have predicted, and the resulting higher costs could be passed onto consumers and cause inflation to rise.
In the US, Donald Trump’s protectionism could mean global supply chain disruptions and trade disputes with leading nations. The potential tariffs of 10% on all imports and up to 60% on Chinese imports are cause for concern, with the potential for higher global market volatility, higher prices, and inflation.
On the flip side, the stock market previously performed well under Trump and the S&P 500 grew by 67% from 2017 to 2021. So, the next few years could present multiple opportunities for investors, particularly in traditional energy such as oil and other sectors like technology.
Globally, nations are focusing on a transition to renewable energy as they strive to meet net-zero commitments. This has taken many forms such as the mass electrification in China and the EU’s Carbon Border Adjustment Mechanism which will set out strict carbon tariffs on imports.
Wind and solar power are projected to account for 95% of global renewable expansion, potentially outpacing fossil fuels in cost and efficiency. We’ll also see a growing prominence of green bonds and other sustainable investments, as well as more innovation in energy storage and hydrogen fuel development.
China’s dominance in the electrification race could mean improved production and more competitive pricing globally. On the other hand, it could result in trade disputes and supply chain disruptions. The move to renewable energy could also lead to geopolitical tensions in energy-rich countries as the demand for fossil fuels diminishes.
For individuals, the renewable energy transition presents excellent investment opportunities and companies with strong ESG practices are likely to attract more capital. This is down to consumer demand and regulatory pressures from governments, so investments in businesses with robust sustainable initiatives is a prudent move.
This also reduces investment risk because you’re accounting for climate change and more corporate responsibility.
Artificial intelligence will be a huge industry in 2025, with more companies embracing the technology as part of their business models. As a result, innovation in AI looks set to accelerate across multiple sectors, particularly in finance and technology.
This means investments in AI hardware providers like Nvidia, and cloud infrastructure companies AWS could see huge growth. The long-term sustainability of the sector, however, will depend on profitability.
The increased adoption of AI could also lead to regulatory and ethical concerns, with the potential for tighter oversight by governments.
The technology sector is thriving with more growth projected in 2025, although perhaps not as much as in 2024. However, while some areas are experiencing saturation, the opportunities in cybersecurity, cloud computing, and AI are still strong.
Geopolitical instability such as the Russia-Ukraine conflict has sparked a demand for renewable and traditional energy sources. Governmental and business incentives for green energy will also boost sustainable energy in 2025.
As a result, renewables will increase in 2025, but traditional energy companies could also see a rebound after a challenging 2024. Overall, the energy sector is projected to grow, with 72% of investors reporting that investment in energy transition assets is accelerating.
Governments are committing to large infrastructure projects and the worldwide spend could grow by more than $9 trillion in 2025. This means construction materials, machinery, and equipment suppliers and manufacturers will see a surge. The demand for raw materials like metals and chemicals is also expected to grow.
With inflation stabilising and wages slowly increasing, retail, leisure, and travel industries could see a boom in 2025, and NielsenIQ projects a global consumer spending increase of $3.2 trillion in 2025. This could mean an increasing dominance of online shopping and digital services and non-essential goods should also enjoy sustained demand.
Market trends for the year ahead will likely reflect technological innovation and shifts in political and environmental policies. A diverse portfolio is therefore advised, split across multiple asset classes to reduce risk.
These should include:
Equities will remain a core component of investment portfolios with technology, renewable energy, and healthcare. The rise of AI also opens the door to allocating funds to tech-focused equities, particularly in cloud services and biotech.
Interest rates have stabilised and if they continue to decline, fixed-income securities could regain their appeal. These include government bonds, corporate bonds, and for those with a higher risk appetite, emerging market debt.
Diversification is king and you can hedge against market volatility with real estate, commodities, private equity, and venture capital. Cryptocurrency could even become more viable, although it’s still extremely volatile.
Sustainable investments that consider environmental, social, and governance factors are becoming increasingly popular for investors. Companies with strong ESG ratings will attract more capital in 2025 because of regulatory pressure and consumer demand, making them great investments.
Gold and cash equivalents could offer stability if the economy becomes volatile in 2025, as could sector-specific ETFS in AI, clean tech, and infrastructure development.
Since market volatility and inflation could increase, defensive stocks and inflation-protected securities are likely to perform well.
Diversification is crucial for any investment strategy as it reduces risk and increases your chances of growth. With the global economy facing several potential tensions in 2025, a diverse portfolio reduces your exposure to market volatility.
Diversification also helps you against fluctuations in industries such as traditional energy, which is set to have a complicated year of growth, with regulatory and geopolitical factors making it less appealing to investors. Diversifying protects against most global geopolitical risks and shields your portfolio from region or industry-specific risks.
It also protects your investments against technological disruption, with a focus on both high-growth and defensive sectors advised to create a more balanced portfolio.
All in all, the long-term resilience of your portfolio depends on how diversified it is. With a dynamic year predicted, having a mix of stocks, bonds, real estate, and even alternative investments across multiple sectors improves your chances of stability and growth potential, regardless of short-term market fluctuations.
As an experienced financial adviser, I’ve seen it all when it comes to investing and understand what’s required to create a balanced, future-fit investment portfolio. By balancing short, medium, and long-term factors, I can help you develop a long-term strategy that fits your circumstances and financial objectives.
This means your finances can survive anything 2025 has to throw at them, from global conflicts to emerging technologies and energy and more.
Markets in 2025 will be shaped by ongoing political and economic factors which could be unpredictable as the year goes on. And while interest rates and inflation are declining, both are still higher than pre-pandemic levels and could increase at some point in the year.
As for investment strategies, 2025 will be full of challenges and opportunities despite market volatility. With opportunities in energy and technology, a diversified investment approach is advised to help navigate the uncertainties the year is sure to bring.
Feel free to get in touch for a discussion around your investments in 2025 and your wider financial situation. An initial conversation costs nothing but it could make 2025 a prosperous one and set the stage for a brighter financial future.