In March, US equities continued their painful downward trend in 2025. Investor concern over US tariffs is driving much of the downward movement. In the UK, this has been exacerbated by the weakening of the US dollar (USD) to the pound (GBP). At home, a revised (weaker) outlook for GDP growth overshadows the Spring Statement. Markets have been more positive in China, but tariff fears are hanging over exporters.
UK policy
The most significant UK policy event in March was the Spring Statement. With no new tax rises announced, it was notable mostly for what it did not contain.
In particular, the possibility of a reduction in the Cash ISA allowance (e.g. to £4,000) did not materialise. However, the Chancellor stated that the government would examine the ISA structure to “get the balance right” between cash and equities.
According to Paul Johnson, director of the Institute for Fiscal Studies (IFS), this could signal the arrival of a “blockbuster autumn Budget” later in the year – when tax rises could be back on the table if the economy worsens.
The UK is currently on course to reach a post-war high for the tax take (37.7% of GDP in 2027-28). With the Chancellor likely looking at further increases, clients should consider how to use their tax-free allowances as much as possible – particularly for pensions and ISAs.
The UK economy
Leading up to the budget, there were widespread fears that the Chancellor’s £9.9bn “fiscal headroom” had already been wiped out.
The Spring Statement helped to balance the books. However, £5bn of this reinstated headroom was wiped out within 48 hours as government borrowing costs surged, with the benchmark 10-year yield rising by as much as eight basis points to 4.81.
According to the OBR, the headroom could be completely wiped out if gilt yields rise by another 0.6 percentage points. Meanwhile, the UK’s growth forecast does not look optimistic, with the OBR halving its forecast to 1%.
UK inflation is expected to rise by 3.2% in 2025 due to rising food and energy prices, possibly peaking at 3.7% mid-year. The base interest rate currently stands at 4.5%, and in late 2024, there was widespread optimism for further cuts across 2025. Now, however, optimism has gone down amidst higher global uncertainty since the US presidential inauguration.
The UK market
The FTSE 100 experienced a rather uneventful March but has otherwise enjoyed a strong start to 2025. Indeed, it is one of the best-performing global indices in Q1 2025.
Some analysts predict that the UK’s flagship index could reach 9,000 points by the end of 2025. Investors could look forward to a bumper dividend forecast of £83.6bn.
On the global stage, UK equities still look comparatively cheap. For investors, that could offer some attractive deals on UK-listed shares. Financial firms are expected to lead performance in 2025, followed by oil and gas, consumer goods and mining.
These sectors offer a high degree of diversification from tech-heavy indices (e.g. the US-based Nasdaq). The UK market is also driven by a high level of mergers and acquisitions (M&A) activity. This could help to lift prices in 2025.
The Global Outlook
Much of the narrative about the global outlook has been driven by concerns over US tariffs. On Wednesday, 2nd April 2025, President Trump is expected to announce “Liberation Day”, which could introduce a fresh salvo of duties on US imports – i.e. 25% on cars, steel, aluminium, pharmaceuticals and semiconductor chips.
Relations have been strained between the US and its traditional allies – notably, neighbouring Canada (which is conducting a general election) and the EU, which have retaliated. The UK has also toughened up its rhetoric against the US recently.
Most economists predict that Trump’s protectionism will harm the US economy. Higher prices could be passed down to consumers, and US earnings growth could be hit by thinner corporate profits. Other countries mostly also see US tariffs as harmful to the global economy.
China has been particularly vocal in its criticism, at least partly driven by fears over the possible impact on its export-led growth. Since January, its economy has faced a new 20% tariff on exports to the US. The state has promised a resolute response to any further tariffs, and is strengthening regional trade ties with Japan and South Korea as a countermeasure.
Closer to home, European equities have enjoyed a strong start to 2025, with investors eyeing Germany more positively. Manufacturing could experience a surge if the government follows through on hints to unleash new investment into defence and infrastructure.
The value of your investments and pensions (and any income from them) can go down as well as up which would have an impact on the level of benefits available
The information contained within this article is based on our understanding of legislation, whether proposed or in force, and market practice at the time of writing. Levels, bases and reliefs from taxation may be subject to change.
The content in this article was correct on 02/04/2025.
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