Chapters Financial - Investment House View

March 2025

February 2025 was one of the busiest months ever for the team at Chapters Financial. With many investment markets remaining buoyant, with some notable geopolitical volatility thrown in for good measure, the end of the tax year is focusing minds on what needs to be - and can be - achieved before 05 April 2025.

There is much to consider globally, with Russia and Ukraine firmly in the news having reached the third year of hostilities, and the application of US tariffs on goods now certain, rather than a veiled threat to negotiate terms. Combined with the retaliation measures, tariffs overall are causing much equity market volatility. Let's not forget that March 2025 also sees the fifth anniversary of the Covid-19 outbreak and its effects.

With our new government now having reached its first six months in office, the government's objective is for economic growth, growth, growth! The UK's Chancellor, Rachel Reeves MP, detailed her significant Budget plans on 30 October 2024 in line with this overall objective. Following Labour's estimates of a £22bn shortfall in the UK's finances, the estimated tax raise was £40bn in this Budget (the highest since the 1970s). Changes were expected in order to raise revenues, either by raising tax, or by reducing outgoings with efficiencies, as we saw recently with introduction of means-testing for the winter fuel payment. 26 March will see this year's Spring Statement, which we understood to be an interesting, but rather benign, procedure. However, rumours abound as to whether it will be an opportunity to raise additional taxes.

Many might suggest that the Budget announcements set the overall fiscal tone for the term of this new government for the next few years, noting that it was a confident speech. Subsequently, many UK businesses are concerned by the planned National Insurance increases to be applied from April 2025, along with the increases in the minimum wage, and some consequences are already being seen.

Changing of debt parameters

The change objective by the now not so new Chancellor is to effectively redefine the way the UK's debt rules work going forward. The planned effect is to allow the Chancellor to borrow more money for the next five years. We are talking about up to £50bn extra to help pay for the planned spending ahead, such as infrastructure spending. The risk is that interest rates remain higher than expected, costing us more over time. Subsequently, borrowing costs have elevated further and have not overly deviated downwards, putting more cost and pressure on the UK's already squeezed budgets.

More can be found on our late 2024 blog here: 30-october-2024-budget-the-headline-changes

The end of the tax year approaches / 2024-2025

We have now reached the last few weeks of the current tax year (2024/2025). If you have not used your allowances thus far this year, then please do take a look at your planning to see if tax can be saved, and funds sheltered where possible. Of course, many allowances will be restored on 06 April 2025, and using your allowances early is usually worthwhile. will be restored on 06 April 2025, and using your allowances early is usually worthwhile. It should be noted that we have the Spring Statement on 26 March 2025.

Economic data from home and abroad

Late-March saw the Office for National Statistics (ONS) confirm that the Consumer Prices Index (CPI) hit 2.8% in the year to February 2025, a slight (and some might argue temporary) reduction on the prior month of 3.0%. The Bank of England target for UK inflation remains unchanged at 2.0%, and inflation is remaining above this level.

As a note, US inflation has fallen slightly - consumer prices (before seasonal adjustment) reduced to 2.8% over the 12 months to February 2025, a decrease from the January 2025 figure of 3.0%.

The Bank of England reduced the base interest rate in early February 2025 to 4.5% (from 4.75%) and held these in March 2025. The US Federal Reserve also maintained their base rate (no change from February) to a range of 4.25-4.5% in March 2025. It has been noted in recent times that even with a currently strong (but slowing) US economy, further rate reductions over 2025 may be slower to come through than first anticipated, with some economic factors (inflation) remaining stubborn.

It should be noted that higher interest rates are good news for savers, and some savings accounts are offering 4.0% - 4.5% pa gross plus. Look out for the AER rate pa (Annual Equivalent Rate) which show the real rate of interest being provided. Of course, higher interest rates are not so good for variable rate borrowers, and the days of cheap borrowing for individuals and nations are over, certainly in the shorter term.

As you might anticipate, many financial thoughts will be UK focused; however, the world is now a small place and many of these economic factors are occurring globally, as we enter a new era of higher costs, inflation, interest rates and the like. Increasing numbers of global conflicts remain constant at this time.

We have looked at some of these points below.

GBP / US dollar

Many readers will know that exchange rates can vary for many economic reasons. For some, it may only become apparent when purchasing foreign currency for a holiday or visit abroad. The current indicated exchange rate is $1.27 at the time of writing (03 March 2025), an increase from recent times.

UK Net Public Sector Gross Domestic Debt v GDP

It is noteworthy that net public sector debt has consistently run for some time at approximately 95%-100% of UK monthly GDP (gross domestic product) (source: Office for National Statistics / ONS). The January 2025 news release for December 2024 has continued in a similar way with the statistics showing the provisional estimate being 97.2% and remains at levels last seen in the early 1960s. Some will not want to see this level (and its associated interest costs) rise.

The ONS notes that GDP growth in the UK in November 2024 was estimated to be 0.1%, following the fall of 0.1% in October 2024.

Markets factor in most things

Turning to the current market position, many individuals may refer to the value of their pension or ISA arrangements as a reference point to how markets are moving. We all know that the value of funds can fall as well as rise, and we have seen some volatility this year, although alongside positive returns from some global equity markets. Volatility is not uncommon, and this can be triggered by global economic events, or their continued effects.

The key point here is that if we think something is happening (such as the ongoing cost-of-living issues), the markets have usually factored in the effects. Looking at the markets on 19 March 2025, in comparison to a year ago, we find the following (approximate):

Market values can fall as well as rise and this is only a snapshot in time. As you can see, and as anticipated, some markets in this snapshot have performed better than others, although this is not a guarantee of future performance.

2025 is moving on as we reach the final approach to 05 April 2025

As we have noted, there is much to consider as we begin the approach to the end of the tax year, and not forgetting the start of the new tax year 2025/2026. Now is a great time to be taking a look at your money planning.

Equity markets have remained buoyant over recent times, although some continued volatility is expected (not guaranteed). There continues to be much political and economic change and jostling globally. Being ready with your overall financial planning and household budgeting is likely to be a far better position than addressing financial issues at hand later. The UK Budget announcements in late 2024, along with the change in political direction in America, will make significant changes as we look forward.

We look forward to working with you into the future, particularly as we approach the end of this tax year 2024/2025.

Keith Churchouse FPFS
Director
CFP Chartered FCSI
Chartered Financial Planner

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