2025 Outlook: Chairman’s View

As we ponder the investment landscape for 2025, our Chairman David Atherton believes UK investors face a complex landscape shaped by global economic trends, domestic fiscal policies, and geopolitical events.

 

This article provides an overview of the outlook for various asset classes, incorporating insights from leading investment firms and considering factors such as UK interest rates, inflation, and the potential impact of the upcoming US presidential inauguration.

Economic Overview

The UK’s economic growth is projected to reach 2.0% in 2025, following a 1.1% increase in 2024. Inflation is expected to average 2.6% in 2025, slightly above the 2% target, with the Bank of England anticipated to adjust interest rates accordingly.

Equities

Brooks Macdonald anticipates continued global economic growth in 2025, with the US maintaining its lead. They emphasize the importance of a diversified investment approach to navigate regional disparities. Tatton Investment Management’s 2025 outlook highlights the potential for U.S. economic growth to outperform other regions, suggesting that investors should adjust their portfolios to capitalize on this trend. The firm also notes the possibility of increased market volatility due to geopolitical events, such as the inauguration of President Donald Trump.

Rathbones, a prominent UK investment management firm, maintains an optimistic yet realistic outlook for equities in 2025. Following the substantial returns of 2024, they anticipate that stable global growth, declining inflation, and ongoing central bank rate cuts will continue to support market performance. However, they caution that current valuations, particularly in the U.S., leave limited room for error, underscoring the importance of diversification in investment portfolios.

Others also highlight the dominance of US equities, driven by strong economic and earnings growth, particularly in the technology sector.

Bonds

The UK’s long-term borrowing costs have reached a 27-year high, with 30-year gilt yields rising to 5.25%. This development may necessitate fiscal adjustments, such as tax increases or spending cuts, to meet fiscal rules.

Brooks Macdonald suggests that high-quality corporate and government bonds offer attractive yields, recommending a focus on shorter-dated bonds to mitigate interest rate sensitivity.

RBC Brewin Dolphin continues to favour equities over bonds for 2025, citing the potential for higher returns in the equity markets.

Alternatives

Gold has performed strongly and some investment houses have broadened their exposure to diversified alternatives. They emphasise the importance of risk-based diversification, particularly in light of potential geopolitical risks and trade tensions.

Quilter Cheviot is expected to continue leveraging alternative investments to enhance portfolio diversification and resilience. Their strategic inclusion of hedge fund replication strategies and focus on sectors like infrastructure and property indicate a proactive approach to navigating potential market volatility in 2025.

Impact of the US Presidential Inauguration

The inauguration of President-elect Donald Trump introduces uncertainties, particularly regarding trade policies and geopolitical tensions.

Schroders anticipates that President Trump’s proposed policies—such as tax reductions, deregulation, increased tariffs, and stricter immigration controls—could stimulate the U.S. economy in the near term, potentially leading to higher inflation. This scenario may prompt the Federal Reserve to adopt a more restrictive monetary stance, resulting in elevated interest rates. Additionally, a more protectionist trade approach could strengthen the U.S. dollar, posing challenges to economic growth in other regions, particularly Europe and emerging markets.

Some critics warn that renewed “America First” policies may lead to increased trade friction, impacting global markets and necessitating careful portfolio diversification.

Conclusion

The investment landscape for 2025 presents both opportunities and challenges. A diversified approach across asset classes and geographies, combined with vigilance regarding geopolitical developments and fiscal policies, will be essential for UK investors seeking to navigate the complexities of the coming year.

Markland Hill Wealth regularly advise on diversification strategies and volatility control to manage potential market dislocations, a process David Atherton is particularly keen on. ‘As an older, more experienced investor, I believe most clients have a fundamental need for robust risk control when investing, and our investment proposition fully caters for this. 2025 is still a year of uncertainty given the amount of potentially positive or negative variables. Our panel of investment managers are well researched and well placed to react’ he added.

Views of our chairman and that of the investment managers are personal views and cannot be relied upon as advice.