Content

• UK: solid market returns and stronger than expected economic growth

• Europe: low inflation and modest market returns

• US: lower market returns, but economic growth outlook remains strong

• Asia: strong market performance and inflation returning to target levels

• How this affects your investments

• Looking ahead

Despite ongoing geopolitical developments and trade tensions, markets performed well in 2025 and have started 2026 positively, with global investment markets delivering positive returns. Inflation rose slightly in the UK, although it is still expected to return to target levels this year. Economic growth remained moderate across most regions, while the US continues to stand out as a stronger area of growth. This underlines the resilience of markets, even in a period of continued uncertainty.

UK: solid market returns and stronger than expected economic growth

The UK economy performed better than expected towards the end of 2025, although inflation also showed its first increase in several months.

The latest data shows that the UK economy grew by 0.3% in November, exceeding expectations. Growth was mainly driven by higher car production and continued strength in the services sector. While this was welcomed by analysts, the outlook suggests that economic growth is still likely to remain moderate in the near term¹.

Inflation rose to 3.4% in December 2025, up from 3.2% in November, marking the first increase since July. The largest contributions to the rise came from alcohol and tobacco, as well as transport costs².

In response, the Bank of England kept interest rates unchanged at 3.75% at its February meeting. The Bank reiterated its view that inflation is expected to slow much more than previously expected falling towards its 2% target from April, and that there may be scope for further interest rate cuts later this year³.

UK Inflation & Interest Rates comparison Jan 2020-Jan 2026

After a strong performance in 2025, UK markets also made a positive start to 2026. The FTSE All-Share index, which represents around 900 of the UK’s largest listed companies, rose by 3.1% over January⁴.

Europe: low inflation and modest market returns

Europe continued to experience low inflation, although markets slightly underperformed compared with other major regions.

Eurozone inflation fell to 1.7% in January, down from 1.9% in December, marking its lowest level since September 2024. This was partly driven by a stronger euro, which rose to a four-year high at the end of the month⁵.

Economic growth across the eurozone remained steady in the fourth quarter of 2025, with GDP (a measure of overall economic activity) increasing by 0.3%, matching the pace seen in the previous quarter.

Among the region’s largest economies, Spain recorded the strongest growth at 0.6%, followed by the Netherlands at 0.5%. Germany and Italy each grew by 0.3%, while France expanded by 0.2%, its slowest rate since the first quarter of 2025⁶.

European markets delivered modest gains at the start of the year. The MSCI Europe ex-UK index, which tracks large and mid-sized companies across the region, rose by 2.4% in January. This made Europe the second weakest-performing major global market for the month⁷.

US: lower market returns, but economic growth outlook remains strong

In the US, growth has remained solid, although inflation is still elevated and market returns have lagged other regions.

US inflation stood at 2.7% in December 2025, unchanged from November⁸.

With inflation still above the Federal Reserve’s 2% target, the US central bank kepts its main interest rate unchanged at 3.5%-3.75% at its January 2026 meeting. This followed three consecutive interest rate cuts over the course of last year⁹.

Official US economic growth figures for the fourth quarter of 2025 has yet to be released. However, analysts currently expect the US economy to grow by around 2.5% over the course of 2026¹⁰.

US markets had a slower start to the year. The S&P 500 index, which tracks 500 of the largest and most influential listed companies, rose by 1.5% in January, making the US the weakest-performing major market for the month¹¹.

Asia: strong market performance and inflation returning to target levels

Asian markets were once again the strongest performers, while inflation trends across the region continued to improve.

In Japan, the TOPIX index, which tracks a broad range of Japanese companies, rose by 4.6% in January¹². Meanwhile, annual inflation eased to 2.1% in December 2025, down from 2.9% the previous month, marking its lowest level since March 2022¹³.

Elsewhere in the region, markets also delivered particularly strong returns. The MSCI Asia ex-Japan index, which measures the performance of large and mid-sized companies across Asian countries excluding Japan, rose by 8.2% over the month. This made Asia one of the strongest-performing global regions¹⁴.

In China, annual inflation edged higher to 0.8% in December 2025, up from 0.7% in November. This was the highest level since February 2023 and marked the third consecutive month of positive inflation¹⁵.

How this affects your investments and long-term plans

While regional performance varied in January, markets made a positive start to the year overall.

With ongoing geopolitical uncertainty, there may be periods of market volatility ahead. However, markets continue to show resilience, and wider economic indicators remain broadly supportive.

For most investors, maintaining a long-term perspective and a well-diversified portfolio remains an important way to manage short-term market movements and remain focused on longer-term outcomes.

Looking ahead

Although markets may experience some ups and downs over the year ahead, a return towards more stable inflation, continued economic growth, and the prospect of further interest rate cuts provide a broadly supportive backdrop for investors.

¹ 15.01.26 UK economy grew by 0.3% in November, beating forecasts BBC, ² 21.01.26 Consumer price inflation, UK: December 2025 Office for National Statistics, ³ 05.02.26 Interest rates and Bank Rate: our latest decision Bank of England, ⁴ 02.02.26 Review of Markets over January JP Morgan, ⁵ 05.02.26 Euro Area Inflation Rate Trading Economics, ⁶ 05.02.26 Euro Area GDP Growth Rate Trading Economics, ⁷ 02.02.26 Review of Markets over 2025 JP Morgan, ⁸ 06.01.26 United States Inflation Rate Trading Economics, ⁹ 05.02.26 United States Fed Funds Interest Rate Trading Economics, ¹⁰ 15.01.26 US GDP Growth Is Projected to Outperform Economist Forecasts in 2026 Goldman Sachs, ¹¹ 02.01.26 Review of Markets over 2025 JP Morgan, ¹¹ 02.01.26 Review of Markets over 2025 JP Morgan, ¹³ 05.02.26 Japan Inflation Rate Trading Economics, ¹⁴ 02.02.26 Review of Markets over 2025 JP Morgan

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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.

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