UK
Geopolitical tensions: the FTSE 100 Index began 2026 with a bang, breaching 10,000 points for the first time ever. Investor sentiment was rattled during January by mounting geopolitical tensions and surging gold prices as US President Donald Trump set his sights on Greenland. Threats of higher tariffs on several European countries, including the UK, raised fears that the US/UK “special relationship” might be in decline, although tensions died down towards the end of the month. Elsewhere, a speech by Bank of England (BoE) Governor Andrew Bailey urged multilateral institutions to be prepared to fight for the “international rules-based system” and against the “rise of so-called populism.” The blue chip index rose by 2.9% over January, boosted by its exposure to the mining and defence sectors. Meanwhile, the FTSE 250 Index rose by 3.5% over the month, lifted by an encouraging trading update from Computacenter, alongside exposure to mining companies.
Growth forecast to pick up: the UK economy expanded by 0.3% in November, underpinned by stronger activity in the services sector and the normalisation of activity in in car manufacturing. Higher air fares and increased prices for alcohol and tobacco drove up the annualised rate of inflation from 3.2% to 3.4%, which posted its first annualised increase since June. Looking ahead, the International Monetary Fund expects UK economic growth of 1.3% in 2025 and 1.5% in 2026, and inflation is forecast to return to the BoE’s 2% target by the end of this year, dampened by a weakening labour market.
Share buybacks surged in 2025: dividends paid by UK companies – excluding the impact of a strong pound and special dividends – rose by 3.6% to £84.7 billion during 2025, according to Computershare’s quarterly Dividend Monitor. Dividend growth was driven by payouts from companies in the industrial goods & support sector and the financials sector, and defence contractors Rolls Royce and BAE Systems were notable individual contributors. Share buybacks reached a provisional £63.6 billion over the year, more than twice their 2019 level, whereas dividends fell by 13% over the same period.
Signs of improving sentiment towards UK equity funds: investors may be “reassessing the UK market’s prospects” according to the Investment Association (IA). The IA reported the smallest outflows for the sector since May, and a “rare” inflow of £52 million into actively managed UK equity funds.
Global
The Tariff Man strikes again: geopolitics returned to the spotlight in January, and the price of gold climbed above US$5,000 per ounce for the first time, driven up by intensifying concerns over the geopolitical and financial outlook. Early in the month, the US seized Venezuela’s President Nicolas Maduro in a controversial military operation. Later, President Trump announced that he intended to take ownership of Greenland, triggering tensions between the US and Europe and leading to threats of additional tariffs on eight European countries, including the UK. In a speech at the World Economic Forum, President Trump subsequently stated that he was dropping his plans. Despite market volatility, the S&P 500 Index breached 7,000 points for the first time and ended January 1.4% higher. In comparison, the Dow Jones Industrial Average Index rose by 1.7% over the month.
Fed up: the US Department of Justice launched a criminal investigation into Federal Reserve (Fed) Chair Jerome Powell, who responded: “This unprecedented action should be seen in the context of the (Trump) administration’s threats and ongoing pressure.” In a joint statement, the heads of eleven central banks backed Chair Powell and reiterated the importance of central bank independence. Towards the end of the month, however, concerns over the Fed’s future independence were alleviated by President Trump’s nomination of Kevin Warsh as the next Fed Chair.
Germany returns to growth: mounting speculation around Greenland provided a boost for European defence-related stocks. The euro rose against the US dollar to reach its highest level since 2021. The eurozone’s rate of consumer price inflation eased from 2.1% to 2% year on year in December, raising hopes of further monetary easing. Meanwhile, after two years of recession, Germany’s economy grew by 0.2% during 2025 as government and household spending helped to offset the impact of falling manufacturing output and lower export activity. The Dax Index rose by 0.2% over January.
General election for Japan: Japan’s Prime Minister Sanae Takaichi announced a snap election in a bid to gain a mandate for her economic and fiscal policies. During January, the Nikkei 225 Index reached a new all-time high, while the yen fell to its lowest level against the US dollar since July 2024, and reached its lowest-ever level against the euro. Over January as a whole, the Nikkei 225 Index rose by 5.9%.
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.