So will 2025 be any better? The past year has been disappointing for most of British business, for UK investors – unless they have a large chunk of their money in the US – and for those of us who predicted better times a year ago.
We start from an uncomfortable position. It has been a year of two halves, the first showing decent growth and the second very little at all. The third quarter was flat, and early reports from retailers about November and December suggest that if anything, things have got worse.
My own predictions a year ago that the FTSE 100 index would rise to 8,500 and the pound to $1.40 looked all right during the year, with the Footsie topping 8,474 in inter-day trading in May and the pound reaching more than $1.34 at the end of September. But they look hopeless now.
My other predictions have proven even worse. The market value of Apple, instead of falling back below $3 trillion, has shot up to nearly $4 trillion. The yield on 10-year gilts, far from staying at around 3.5 per cent, is now more than 4.6 per cent. And as for my expectation that the value of Bitcoin would collapse to below $20,000 – well, it topped $106,000 a few days ago.
The only thing that I got more or less right was that UK house prices would rise by 5 per cent. Halifax calculates they were up 4.8 per cent in November and the trend has been rising, so when we get the December numbers, we should be there.
So what went wrong? The easy answer is that the new government has been much less competent than we could reasonably have expected, saying the economy was in a mess when actually it was growing very well, and then clobbering it with that dreadful Budget. As a result, the reassessment of the UK as a good place to invest hasn’t happened; indeed quite the reverse.
Troubled times: The new government has been much less competent than we could reasonably have expected
But it’s not just our politics. Inflation did come down, but now it is rising again. That is pushing up long-term interest rates and will damage growth this year. The big economies on the Continent – Germany and France – are in trouble. And the huge boom in the US has got new legs from Donald Trump’s election victory. Why keep your money in gloomy Britain when you can get a much better return in buoyant America?
Let’s look forward. Anyone peering into 2025 has to try to answer two questions. One is, will the UK avoid recession? The other is, when and how will the US boom end?
The official view is that UK growth won’t be too bad. The Bank of England and the International Monetary Fund both expect it to be around 1.5 per cent, and the Office for Budget Responsibility thinks it will be 2 per cent. Well, maybe they are right, but it’s hard to square this relative optimism with what most businesses are saying. For example, the Confederation of British Industry’s industrial trends survey showed that manufacturing orders are at their lowest since the Covid pandemic.
What we really don’t know is how small and medium-sized enterprises will react to the rise in employer National Insurance Contributions, which will hit in April. These firms employ nearly 17 million people, some 60 per cent of the workforce. Will they increase prices? Yes, of course. Cut staff? Some will, but we don’t know how many.
It’s odd. We hear so much about big companies, the ones whose people get invited to talk to ministers, but very little about small ones – which in aggregate matter vastly more. If there’s going to be a recession, they will be in the front line fighting it off.
The other great imponderable will be what happens in America. We know that the market boom has to end. It is already taken on that heady, frothy, over-the-top feeling. But we can’t see when or how that will happen. Nor, even more importantly, how a market correction – or crash – will affect the real economy. Long-term, the US will surely dominate the world economy to an even greater extent than now. Short-term, I’m worried.
So, a hope. It is that the US will have a calm and measured end to its boom. If it does that, the rest of us will scramble through the coming year in an OK shape. If not, there are big bumps ahead.
DIY INVESTING PLATFORMS
AJ Bell
AJ Bell
Easy investing and ready-made portfolios
Hargreaves Lansdown
Hargreaves Lansdown
Free fund dealing and investment ideas
interactive investor
interactive investor
Flat-fee investing from £4.99 per month
Saxo
Saxo
Get £200 back in trading fees
Trading 212
Trading 212
Free dealing and no account fee
Affiliate links: If you take out a product This is Money may earn a commission. These deals are chosen by our editorial team, as we think they are worth highlighting. This does not affect our editorial independence.
Compare the best investing account for you
