With 2024 drawing to a close, it’s fair to say that it’s been a year of significant political and economic events.
Indeed, both the UK and the US had tumultuous elections which saw the Labour Party and Donald Trump voted into power, respectively.
Moreover, the Autumn Budget introduced new financial legislation that will change how you manage your wealth both now, and in the near future.
Yet, the winter solstice, which occurs on 21 December, signifies that brighter days are ahead. As such, now could be the ideal time to explore some inspiring financial reasons why you should feel optimistic about 2025.
Read on for five of these.
1. Inflation could continue cooling
Inflation has been a significant concern in recent years, especially following the Covid-19 pandemic. This refers to the way that the rising cost of living slowly erodes the purchasing power of your wealth and puts a strain on your finances.
Thankfully, inflation is currently much lower than it has been. In fact, the Office for National Statistics reveals that the Consumer Prices Index (CPI) stands at 2.3% in the 12 months leading to October 2024.
The British Chambers of Commerce predicts that inflation will push closer to the Bank of England (BoE) target of 2% next year, potentially reaching 2.2% by the final quarter of 2025.
While this forecast doesn’t indicate a considerable decline, it does show that things seem far more stable now than they did previously, and experts don’t anticipate a sudden price increase.
This could help stabilise the cost of living, making it far easier to manage your finances in the year ahead.
2. Interest rates might fall as the year progresses
The BoE base rate plays an important role in determining the cost of borrowing and saving in the UK. Indeed, when it is high, borrowing becomes more expensive while saving is typically more rewarding which, in turn, influences inflation.
As of 5 December 2024, the BoE base rate stands at 4.75%, having fallen in August and November 2024. Encouragingly, forecasts suggest a downward trend will continue in 2025.
While these predictions do vary, This is Money reveals that they include:
- 2.75% by the end of 2025 from Goldman Sachs
- 3.75% from Santander
- 3.5% by early 2026 from Capital Economics.
Lower interest rates can bring several benefits, such as more affordable mortgage repayments if you’re a homeowner, or cheaper loans if you’re a business owner.
3. Markets could continue to rise
While there have been moments of uncertainty, global markets did show some resilience in 2024, with notable gains across major indices.
For instance, the FTSE 100 – an index of the largest 100 companies in the UK – climbed from 7,462 on 19 January 2024 to 8,336 by 5 December of the same year, an 11.7% increase. Meanwhile, the S&P 500 – the 500 largest companies in the US – climbed from 4,840 to 6,069 over the same period, equating to a 25.4% rise.
Looking ahead to 2025, market sentiment remains optimistic, yet cautious.
The Motley Fool estimates that the S&P 500 could rise to 6,500 by the end of 2025, representing a potential gain of around 9% from November 2024.
Meanwhile, the Economic Forecast Agency suggests that the FTSE 100 could climb by 21% from November 2024 to reach around 9,900 points by December 2025. And, 66% of expert market respondents express confidence in its prospects for growth by the end of 2025.
While past performance is by no means an indicator of future results, this prediction for upward growth could inspire confidence in your investment strategy and could mean you’re less likely to react emotionally to periods of downturn.
4. Your State Pension entitlement might increase
The State Pension can play a highly useful role as part of your retirement income. This is because it can form the bedrock of your retirement income, helping you manage regular costs while your other sources of pension wealth can cover more considerable purchases, such as home renovations or dream holidays.
Better yet, the triple lock ensures it increases in line with the highest of:
- Inflation (as measured by the CPI)
- Average wage growth
- 2.5%.
Following its suspension during the pandemic, the chancellor, Rachel Reeves, has reaffirmed the government’s commitment to the triple lock after April 2025.
This means that the new full State Pension entitlement will rise from £221.20 to £230.25 a week – a 4.1% increase. If you’re entitled to the whole amount of the State Pension, that means you’ll benefit from this higher amount from April 2025.
Knowing that your retirement income will continue to adjust to the cost of living could offer some much-needed reassurance as you plan for the future.
5. Environmental, social, and governance credentials could become even more important
Ethical issues have gained considerable traction in recent years, and 2025 could be an important year for environmental, social, and governance (ESG) investing.
This type of investing involves aligning your wealth with your values based on three key factors:
- Environmental – Identifies how a company’s operations affect the environment and the measures it takes to reduce this impact, such as managing waste or using renewable energy.
- Social – Focuses more on a company’s relationship with its employees and the communities it operates in, namely how it treats staff and the working conditions provided.
- Governance – Refers to how ethically and transparently a company is run, such as its corporate structure or tax strategies.
Earlier this year, the Financial Conduct Authority (FCA) introduced new frameworks to combat greenwashing, which is when a company makes misleading claims about its ethical credentials.
These measures include:
- New anti-greenwashing rules that aim to increase the transparency of sustainability-related claims from companies
- Labels to help you identify truly “green” companies
- Naming and marketing rules to regulate how investment products can be marketed.
Thankfully, this trend seems to be growing across the world.
Indeed, Carbon Trail reveals that the US Securities and Exchange Commission (SEC) has been in the process of developing rules that are centred on climate reporting standards.
Meanwhile, several countries in Asia, namely Singapore and Japan, are attempting to establish domestic reporting frameworks that correspond with international ones.
This could prompt more and more international companies to integrate more robust ESG initiatives, making it easier to identify investments that align with your personal values.
By choosing ESG investments, you can support companies that are actively attempting to improve their environmental and social impacts. This offers the dual benefit of aiming to grow your wealth, all while fostering change for the better, which is certainly something to be positive about.
Get in touch
As 2024 comes to a close, we remain committed to helping you manage your wealth in 2025, no matter what happens in the new year.
To find out more, please contact us by email at info@investmentsense.co.uk or call 0115 933 8433.
Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.
