Investment Market update: January 2025

With inflation rising in several regions, find out how markets performed at the end of the year and throughout 2024.

5 min read

Following a surge in inflation driven by the pandemic and the Russian invasion of Ukraine, 2024 finally saw inflation return to more manageable levels in most regions. However, as the year drew to a close, inflation began to creep above target levels once again. Meanwhile, several global indices experienced dips in the fourth quarter.

Find out what these developments could mean for your investments at the start of 2025.

US

December saw a slight uptick in US inflation, rising to 2.7% in the 12 months to November from 2.6% in October. Among other variables, this is in part due to the fact that wages have risen faster than inflation, which has kept spending levels up¹.

Despite this increase, the Federal Reserve (Fed) ended the year by cutting the benchmark rate by a further 0.25 percentage points in December, bringing it down to between 4.25% and 4.5%. However, in response to the latest inflation data, the Fed also announced that it projects just two further cuts in 2025².

US equities delivered gains of 2.4% across Q4, cementing their status as the top-performing global index of 2024 with an impressive annual return of 25%³.

Overall, despite some mid-year concerns, US markets demonstrated strong performance throughout the year.

UK

The latest figures reveal that UK inflation rose to 2.6% in the 12 months to November, up from 2.3% in October⁴.

In response, the Bank of England (BoE) opted to hold the base rate at 4.75% following its final meeting of the year in December⁵. Rising pay growth, which grew to 5.2% in October, put further pressure on the BoE to hold interest rates⁶.

However, many analysts anticipate potential base rate cuts in the near future to stimulate growth⁷.

Equity returns were down at the close of Q4, with the FTSE All-Share Index posting losses of 0.4% for the quarter. Despite this, annual performance remained solid, delivering total gains of 9.5% for 2024⁸.

Europe

Data from November shows that inflation is on the rise in Europe, having reached 2.2% in the euro area and 2.5% in the European Union⁹.

Despite this, in December, the European Central Bank cut interest rates for the fourth time in 2024 to 3% from 3.25%¹⁰.

Eurozone equities posted losses in Q4, with the MSCI Europe ex-UK falling by 3.6% over the quarter¹¹.

Although the eurozone posted gains of 8.1% throughout the year, the MSCI Europe ex-UK was the joint worst-performing global index across 2024. This was largely down to the poor performance of the manufacturing sector and the continuing political uncertainty in both France and Germany¹².

Asia

In China, inflation rose by just 0.2% in November, down from 0.3% in October, reaching a five-month low, which suggests that recent efforts to address low demand are only having a limited impact¹³.

In Japan, inflation climbed to 2.4% in the 12 months to December, up from 2.2% in November. Policymakers are closely monitoring these figures as they look to progress toward achieving the Bank of Japan’s 2% inflation target, which is a prerequisite for considering further changes to interest rates¹⁴.

On the stock markets, Japan’s TOPIX was the strongest-performing global index in Q4, posting gains of 5.4% across the quarter. Meanwhile, as China continues to grapple with falling property prices and weak consumer confidence, the MSCI Asia ex-Japan was the second-worst performer, recording losses of 7.4% in Q4.

However, both indices remained strong performers throughout 2024, growing by 20.5% and 12.5% respectively¹⁵.

What this means for you

Inflation continues to exceed target levels in several regions, though notably not in China. Rising inflation increases the risk that your cash savings will lose purchasing power over time.

While UK, European, and Asian ex-Japan markets experienced losses in Q4, investing in the market – especially over longer time horizons – typically offers a greater chance of outpacing inflation compared to holding cash.

For instance, in the final quarter of 2024, all but two global indices posted losses. However, when looking at the entire year, every index posted gains. This highlights the value of maintaining a long-term perspective and staying invested through short-term market fluctuations.

Please note: This guide is for general information only and does not constitute advice. The information is aimed at retail clients only.

The content of this guide was accurate at the time of writing. While information is considered to be true and correct at the date of publication, changes in circumstances, regulation, and legislation after the time of publication may affect the accuracy of the guide.

Sources:

FP2025-014

Back to articles