UK
FTSE 100 Index hits record high: mounting hopes of lower interest rates, alongside weaker sterling, rising oil prices, and renewed interest in non-technology stocks, propelled the FTSE 100 Index to new highs during January. The blue chip index rose by 6.1% over the month, while the FTSE 250 Index climbed by 1.6%.
Muted economic growth: the UK economy expanded by only 0.1% during November, posting its first month-on-month growth since August. Over the three months to November, the economy is estimated to have stagnated. Nevertheless, UK growth is set to outperform Germany, France, and Italy this year and next, according to the International Monetary Fund, which raised its 2025 UK growth forecast from 1.5% to 1.6% and maintained its 2026 forecast at 1.5%.
Inflation cools: consumer price inflation fell from 2.6% to 2.5% year on year in December, representing the first decline since September. Core inflation also eased, falling from 3.5% to 3.2% and boosting hopes for a cut in interest rates at the Monetary Policy Committee’s February meeting. The data reduced pressure on bond yields, which had risen earlier in the month amid concerns that impending US tariffs could push up inflation.
Gloomy outlook for businesses and consumers: the Confederation of British Industry warned of “widespread” pessimism across the UK’s private sector, with many companies expecting “a significant fall in activity” exacerbated by lacklustre demand and cautious consumers. Meanwhile, GfK reported that UK consumer confidence had fallen to its lowest level in more than a year during January and warned of “dark days ahead.”
2024 profit warnings: 18.8% of UK-listed companies issued a profit warning in 2024, according to a quarterly survey by EY Parthenon, representing the third-highest total in 25 years. 34% of those companies cited contract and order cancellations or delays. The sectors with the most warnings included industrial support services, software and computer services, and retailers.
Mining sector curbs 2024 dividend payouts: UK dividends rose at a headline rate of 2.3% to reach during 2024, boosted by special dividend payments, according to Computershare’s Dividend Monitor. On an underlying basis, however, they fell by 0.4% during the year, dampened by dividend cuts in the mining sector. Looking ahead, Computershare expects dividends to rise at a headline rate of 0.7% to £92.7 billion in 2025.
Global
Trump takes office: US markets rose following Donald Trump’s inauguration, as the 47th US President began to issue a raft of executive orders. However, the technology sector dipped sharply as the release of DeepSeek, a Chinese AI app, triggered concerns over the long-term prospects of more established players. Nvidia’s share price fell by almost 17% in one day, although it had rallied to some extent by the end of the month. The Dow Jones Industrial Average Index rose by 4.7% over January as a whole, while the Nasdaq Index rose by 1.6%.
Tariff announcements: following his inauguration, President Trump announced tariffs of 25% on imports from Canada and Mexico, and a levy of 10% on goods from China. The news raised concerns about the prospect of renewed inflationary pressures that were calmed to some extent by a subsequent delay to the levies on Canada and Mexico. President Trump is also expected to impose tariffs on imports from the EU. At the World Economic Forum in Davos, China’s vice-premier Ding Xuexiang said: “Protectionism leads nowhere. Trade war has no winners.”
Fed maintains rates … policymakers at the Federal Reserve (Fed) left the key federal funds interest rate unchanged at 4.25% to 4.5%. The decision had been widely anticipated, but President Trump responded by criticising the central bank’s response to inflation.
… the ECB cuts … as expected, the European Central Bank (ECB) cut its key interest rate by 25 basis points to 2.75%. The eurozone’s rate of inflation rose from 2.2% to 2.4% in December, reaching its highest level since July; nevertheless, further cuts are widely expected. Economic growth in the eurozone stagnated during the final quarter of 2024; having contracted by 0.3% during 2023, Germany’s economy shrank for a second consecutive year in 2024, contracting by 0.2%. Nevertheless, the Dax Index rose by 9.2% over January and hit a new high, boosted by optimism over the prospect of further monetary easing.
…. and Japan tightens: the Bank of Japan (BoJ) raised its key interest rate by about 25 basis points to “around 0.5%” in January. Rates are now at their highest level since 2008, with further increases expected. The BoJ said it would “continue to raise the policy interest rate and adjust the degree of monetary accommodation.” The Nikkei 225 Index fell by 0.8% in January.
As ever, if you have any questions regarding your investments, please do not hesitate to contact us by calling +44 (0) 7917 390 344 or emailing me at richardbrazier@culverfinancial.co.uk and we will be happy to talk to you.