(Bloomberg) -- In a live Q&A on the Markets Today blog, we took a look at what lies ahead for UK markets in 2025.
Here is a lightly edited transcript of the conversation, covering topics suggested by readers and the team itself. For the latest on everything that matters for UK investors, check out Markets Today.
Our first question is about what’s in store for stocks and whether the FTSE 100 can surpass its record again in 2025.
Here’s Markets Today’s Sam Unsted:
“The year’s not yet out, but the FTSE 100 is not far from its record close, so notching up a new one would only take a small increase. But there are lots of moving parts.
The wild card is what Donald Trump will do in his second-term. Tariffs are top of mind and could have all sorts of implications for global growth.
If the US keeps outperforming other markets, meanwhile, the FTSE 100 will struggle to keep up, particularly if that continues to be led by tech stocks.
A greater number of strategists are more positive on the outlook for the FTSE 250, the domestically-skewed midcap index. It should benefit from BOE rate cuts, even if they only come gradually, and from a short-term boost to the economy from the extra spending that the government has planned. Whether that holds beyond 2025 remains to be seen.”
We also had several questions about the pound and how it will perform in 2025.
This is Morwenna Coniam’s answer:
“It’s always difficult to predict how a currency like the pound will fare over a period beyond the very short term. Forecasts change frequently, usually within a narrow range of the current value. That’s partly because big moves tend to be the result of unexpected geopolitical events, either within the UK (like Brexit or the mini budget of 2022) or in the other side of the trading pair.
For example, we’ve recently seen the pound rise to its strongest versus the euro since 2016 (just after the Brexit vote, in fact) thanks to pressure on the single European currency amid political instability in France and under the specter of US tariffs under a second Trump presidency.
A global market meltdown and Trump’s election victory also had at least as sizeable an impact on the value of the pound versus the US dollar as the UK election or budget.
And then of course we have to consider that central banks in all three regions are in the midst of reducing interest rates. The difference between the pace and magnitude of their respective cuts can impact how their currencies trade against one another.
At the moment the median forecast among analysts surveyed by Bloomberg is for the pound to be worth $1.28 at the end of 2025, compared to around $1.27 right now. But at the end of October, before the US election, they predicted it ending next year at $1.35.
Against the euro, estimates have climbed throughout the course of the year. Analysts now see the euro being worth 82 pence and the end of 2025, compared to a forecast of 86 pence back in the summer.
So for now, the pound is expected to end next year slightly higher versus both the dollar and the euro, but there’s a lot that could change between now and then.”
2024 saw the first rate cuts from the Bank of England in four years. Is there much more easing to come?
Dave Goodman:
“Markets are currently pricing in about three rate cuts from the Bank of England next year — about in line with the Federal Reserve and less than the European Central Bank. Both of those have already cut more than the BOE in this cycle.
Interestingly, that pricing falls short of the four moves some BOE officials have indicated might be a reasonable assumption for the year — a disparity that is worth watching closely as we go into 2025.
It’s also worth remembering how quickly the situation can change. At the end of last year, traders were predicting about six cuts from the BOE. In the end, despite inflation coming down way, way quicker than the bank forecast, it is likely to only deliver two.”
What will affect the price of UK gilts over the year?
Dave Goodman:
“Monetary and fiscal policy — both actual and expected — are the key for the outlook for gilts next year (and any year). A Bank of England that cuts rates faster — or slower — than the market is currently looking for is obviously a big factor, but what Rachel Reeves does at the Treasury could be more important.
As the reaction to her budget shows, bond investors are watching the UK closely for signs of fiscal largesse (arguably a hangover from the Liz Truss experience) so any signs Reeves needs to borrow more to fund her spending plans could go down pretty badly.”
We’ve also had some questions in on corporate bonds. One reader asks: Will they be making a comeback in 2025?
Here’s credit reporter Tasos Vossos:
“It’s less about making a comeback and more about whether the gains can continue. The big question is how much more expensive the asset class can get amid relentless inflows to credit funds. Risk premiums over government bonds are already at — or near — historic tight levels, yet few foresee anything that will shake them significantly wider in the new year. This is why a number of fund managers see 2025 as a so-called year of carry, when coupon payments will make up most of the returns.
On the flipside, expensive valuations also mean a limited buffer against a setbacks. For example, nobody entered 2023 anticipating a blowout in US regional banks or the AT1 market and there wasn’t much noise around European carmakers in early 2024. Something always happens but the question people struggle to answer now is what and when.”
What should we expect from the UK IPO market in 2025?
Sam Unsted:
“The UK has had three bad years in a row for new listings. This year, Oman and Luxembourg saw more money raised from IPOs. It should be a relatively safe bet that things will be at least better.
There is a tentative pipeline of listings emerging — topped by Chinese fast-fashion group Shein — and investment banks think the tide will turn in the second half of next year.
However, bad run is likely to renew calls for more reforms to be made — by regulators, exchanges and the government — to encourage more listings in London. Removing stamp duty on share trading will likely be high on the list. Some changes have been made, but so far the impact has been pretty minimal.”
Cryptocurrencies have soared to new records in 2024. Will digital currencies like Bitcoin continue to rise?
Crypto reporter Emily Nicole says:
“With the re-election of Donald Trump in the US, the landscape for cryptocurrencies is expected to be bright in 2025.
Trump’s new administration is already staffed with pro-crypto names across business and regulation — a stark change from the approach under Biden, where regulators levied multiple enforcement actions against crypto businesses and assets.
As attitudes towards the sector ease, retail appetite picks up and legislative clarity emerges, cryptocurrency prices will likely benefit from greater freedom of movement in the industry’s largest geographical market.”
A favourite topic for Markets Today is, of course, housing. Looking ahead, what’s the outlook like for house prices in 2025?
Here’s our residential real estate reporter Damian Shepherd’s answer:
“Analysts are broadly in agreement that UK house prices will climb in 2025. Mortgage rates are expected to fall to their lowest point midway through next year, prompting more activity and higher prices.
Also, a return to pricier stamp duty bills from April will likely lead to more competition for those looking to get deals done before the hike comes into effect. That could give sellers the power to price higher.
Indeed Hamptons predicts a 3% rise across Britain, with slightly higher growth of 4% in London. Interestingly, though, the broker downgraded its forecast for house price growth in 2026 to 3.5% from 5% after Labour’s budget, warning tax hikes could halt the recovery.
It noted increases to employer national insurance contributions and pricier stamp duty on second homes as risks to long-term price growth.”
We’ve had a number of questions on what the return of President Trump will mean for the UK economy. One particular area economists will be focusing on is trade.
Our UK politics and economics reporter Lucy White explains:
“From a trade perspective, Trump is the big unknown next year. During his election campaign, he promised a universal tariff of up to 20% on all goods imported to the US, as well as a 60% tariff on China.
While the UK will likely be well down his hit-list, manufacturers in Britain could still face a headache. They’ll be wary of goods being dumped in their domestic market by the likes of Canada, Mexico and China, as companies try to flog products that would otherwise have gone to the US.
If Trump pushes ahead with a worst-case scenario, imposing a blanket levy as promised, expect renewed negotiations on a deal with the US as officials attempt to secure derogations.
Another key area of focus for the UK will be negotiations over a trade deal with India. Improved access to India’s markets could be huge for some exporters, such as whisky manufacturers.
And Prime Minister Keir Starmer has spoken about wanting closer collaboration with the EU, including an agreement on food and agricultural standards. A review of the Trade and Cooperation Agreement, which governs Britain’s post-Brexit relationship with the EU, is due in 2026 and would be the likely catalyst for this.
With that in mind, it’ll be worth keeping an eye on any talks between the UK and the EU next year for hints of where than review might go.”
We’ve also had a question on the outlook for the jobs market and which sectors will see the most growth or upward pay pressure?
Our economy reporter Tom Rees says:
“2025 may be a tricky year for the jobs market as employers digest the huge increase in their national insurance bills.
Early survey data suggests they will pass on the tax hike largely through higher prices and job losses rather than through wages. That may mean labor-intensive sectors, such as retail and hospitality, shed staff, as was the case this year. But there will likely be some bright spots.
Employment in the public sector has held up better than in the private sector, according to tax data. Demand for staff in health and defence was strong this year and is unlikely to wane in 2025, with the government vowing to revive the National Health Service and increase defence spending.
The construction sector may be also see strong employment growth if the Labour administration can boost housebuilding and ease planning constraints.”
So more broadly, what should we be paying attention to from the government for the UK economy next year?
UK economy reporter Phil Aldrick says:
“There are two key fiscal events in the first half of the year – the Office for Budget Responsibility’s updated economic forecast that must be delivered before April and the Spending Review, which looks like it will be in June.
In theory, the OBR forecast should be quiet because Chancellor Rachel Reeves has promised to hold just one fiscal event a year. But there is a risk the OBR wipes out all £9.9 billion of her spending headroom. If it happens, Reeves will have to raise taxes or find savings in what would end up being a mini-fiscal event.
At the Spending Review, she will set departmental budgets for 2026-29. In a sign of how tough the settlements will be, she has asked department heads to find 5% savings and said public sector pay will rise just 2.8% next year. Too tough and she may provoke a backlash.
After all that, there will be the autumn budget at the end of the year. Reeves has promised there will no more big tax rises but the OBR may not be produce such accommodating forecasts. Given the thin headroom she has, it may be another difficult moment.
Reeves will be praying that the economy takes off in 2025 – doing all the work on taxes and spending for her. But US President-elect Donald Trump could throw a spanner in the works. If he does launch a global trade war that drags in the UK, growth may slow and the OBR may revise down its forecasts. Reeves would then be looking for money to fill a fiscal hole.”
--With assistance from Nick Bartlett, Lucy White, Emily Nicolle, Philip Aldrick, Tom Rees, Damian Shepherd, Sam Unsted, Tasos Vossos and David Goodman.
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