How to invest in 2025

Investors hoped for falling inflation, interest rate cuts and a strong stock market in 2024, all of which materialised, but we’re never happy are we?

Inflation fell in line with the Bank of England’s predictions and rose slightly in the final months of the year, again as predicted, but it seems we’re finally waking up to the fact that 2.6pc is only good relative to the past couple of years – and could break 3pc again in 2025.

Interest rate cuts came and went – two is a far cry from the six that markets were (optimistically) betting on 12 months ago. The FTSE 100 ended the year in the green and even recovered from the Budget-shaped hiccup in October.

Like most other markets, the UK blue-chip index also endured the temporary summer correction largely attributed to the unravelling of the yen-carry trade. Whether the majority cause or not, we all now know one more financial vagary than we did before the summer.

But where does that leave us in 2025, and how should you be investing this year?

Rate expectations

Markets have certainly tempered their expectations for rate cuts – just two are expected for the Bank of England, while the Fed’s third consecutive cut to close out 2024 may be its last for a while. We may only see one more this year.