As we look forward to 2025 and consider what might impact investment markets in the UK and around the world, it's essential to reflect on 2024 and the events that may continue to influence these markets.
Events can have positive as well as negative impact on investments, to find out more on what factors can impact your investment read our article ‘Some of the Factors that could influence investment performance’.
The UK The UK had a general election in 2024, with the Labour Party coming to power with a growth agenda, led by Sir Keir Starmer. With Labour’s victory and their Autumn budget, the full impact on growth within listed UK companies remains to be seen. Although inflation fell throughout 2024, it was still above target in October, with certain areas of inflation remaining sticky and elevated. This could lead to an increase if other parts of inflation also start to grow. Inflation can impact real returns, for example, to gain a real return your investment performance needs to outperform inflation rates.
The US The US also held elections in 2024, and President-elect Trump is due to take office later this month. This could lead to dramatic changes in US policy, impacting not only the United States but also the global market. As reported in the press, he has stated his intention to impose tariffs on imports from several countries, including Canada, Mexico, China, and the EU. The impact of these tariffs and the response from these countries is unknown, but whatever direction these take will undoubtedly have a worldwide impact, likely affecting investment markets.
Europe Political uncertainty remains across Europe following the collapse of France’s Government at the end of 2024 which has impacted the country’s economic outlook and with several elections scheduled elsewhere in Europe for 2025, there could be implications for European investment markets. The ongoing conflict in Ukraine could also impact investment markets as well as the impact of a Trump presidency.
Globally Unfortunately, the war in Ukraine is not the only area of conflict in the world. Throughout 2024, we saw fighting break out in the Middle East, regime change in Syria, increasing tensions between China and Taiwan, and further rhetoric from North Korea. In 2025, the development and direction of these tensions will impact investment markets, in addition to any new tensions or conflicts that may arise.
One of the impacts on inflation is the price of oil and energy. We have all seen price rises over recent years and the impact these have had. Therefore, changes in oil prices will directly impact investment markets. If the tensions mentioned above continue or escalate, we could see further rises in these prices. However, with de-escalation, prices could fall significantly.
Overall As we head into 2025, there continues to be a lot of uncertainty, not least from geopolitical tensions and trade relations around the world, but also continued uncertainty from the events of 2024. Each of these topics could dramatically impact investment markets and asset classes like equity and bonds. Given the uncertainty of direction, this impact could be positive or negative. Although the consensus within the investment industry suggests the probability of slow growth, this could change very quickly.
Stock markets can rise and fall for various reasons, such as those topics outlined above. Whilst ups and downs can be unsettling, they are part and parcel of investing.
Stock markets naturally experience fluctuations. Although short-term volatility can be unsettling, investing is a long-term endeavor. Avoiding reactive decisions during market downturns can help prevent locking in losses and missing out on potential recovery. While past performance is not a guarantee of future results, history has shown that markets often recover over time.
Keep in mind stock market investments can go down as well as up, so you could get back less than you've paid in.
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