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In our Market Insights, Prosperity Investment Management examines the latest developments across the globe's biggest financial markets - providing you with all the latest information you need to know.
UK economy grows for the first time in three months with latest data
The UK economy grew slightly in November, marking the first expansion in three months, thanks to increased activity in pubs, restaurants, and the construction sector. Official data revealed a modest 0.1% rise following contractions in the previous two months.
This return to growth is a positive signal for the government after recent financial market instability drove up borrowing costs to multi-year highs and caused a sharp decline in the value of the pound.
However, the growth rate fell short of economists' expectations, with declines noted in manufacturing as well as business rentals and leasing.
Businesses have expressed concerns about upcoming tax increases in April, including hikes in National Insurance and the minimum wage. They warn these additional costs could hinder economic growth by reducing employers' ability to offer pay raises or create new jobs.
According to the Office for National Statistics (ONS), the economy showed no growth in the three months leading up to November. The slight November uptick was primarily driven by the construction and services industries.
Economic growth typically indicates increased consumer spending, more job creation, higher tax revenues, and better wage increases for workers. Conversely, economic contraction often leads to reduced business investment and job losses.
The lower-than-expected growth has heightened speculation that the Bank of England may lower interest rates at its February meeting, reducing them from 4.75% to 4.5%.
Despite the current challenges, economic prospects for 2025 appear more optimistic. Consumer demand is projected to remain strong, and some analysts believe the economy will benefit from the government’s plans to reinvest increased tax revenues into greater public spending in 2025.
Prices surge as US inflation returns once more
Energy and food prices surged in the US last month, complicating efforts to stabilize inflation. According to the Labor Department, overall prices in December were 2.9% higher than the previous year, up from November’s 2.7%.
Energy costs drove more than 40% of the inflation increase, while egg prices soared over 36% compared to 2023 due to a bird flu outbreak that disrupted supply. However, prices for other goods rose less than anticipated, easing concerns that the Federal Reserve might need to take stronger action to curb inflation.
Core inflation, which excludes the volatile categories of food and energy, rose by 3.2% year-over-year and just 0.2% from November—both figures below analysts' expectations. Economists consider core inflation a better measure of underlying price trends.
In response, US stock prices climbed, and bond yields dropped in early trading on Wednesday, signaling relief among investors.
Inflation has fallen significantly since its 2022 peak of over 9%, as the Federal Reserve raised interest rates to their highest levels in more than two decades to tackle the issue. Investors had anticipated rate cuts this year, but the Fed is unlikely to lower rates if economic growth remains strong.
Robust job creation last month raised doubts about how much interest rates might decrease in the near term. Market uncertainty also stems from President-elect Donald Trump’s proposed policies, including tariffs, large-scale deportations, and tax cuts, which could fuel inflation and further delay rate reductions.
Price increases were seen in several categories last month, including used cars, airline tickets, medical care, and car insurance. Grocery prices rose 0.3% month-over-month and were 1.8% higher than in December 2023.
Housing costs, a significant inflation driver, increased by 0.3% from November, matching the previous month’s pace, and rose 4.6% year-over-year. Meanwhile, petrol prices climbed 4.4% from November but remained below their year-ago levels.
The Federal Reserve is widely expected to leave its key interest rate, currently around 4.3%, unchanged at its upcoming meeting.
Global economic growth to remain at 2.5% in 2025
A slight boost to global economic activity in 2025 could result from easing inflation and looser monetary policies in many countries.
However, the United Nations' World Economic Situation and Prospects 2025 report predicts global growth will hold steady at 2.8%, unchanged from 2024.
Despite these potential gains, significant uncertainties remain. Risks from geopolitical conflicts, rising trade tensions, and high borrowing costs continue to challenge the global economy, particularly for low-income and vulnerable nations.
The report projects a slowdown in the United States, where growth is expected to decline from 2.8% in 2024 to 1.9% in 2025, reflecting a cooling labor market and weaker consumer spending. In Europe, growth is forecast to pick up moderately, with GDP rising from 0.9% in 2024 to 1.3% in 2025, supported by declining inflation and resilient labor markets. However, fiscal tightening and long-term issues like low productivity and an aging population will weigh on the region’s prospects.
East Asia’s economy is expected to grow by 4.7% in 2025, fueled by China’s stable performance (4.8% year-over-year) and strong private consumption. Meanwhile, South Asia will remain the fastest-growing region, with projected growth of 5.7% year-over-year, led by India, where GDP is forecast to expand by 6.6%.
Global trade is predicted to grow by 3.2% in 2025, slightly below the 3.4% growth expected in 2024. However, trade policy tensions and geopolitical uncertainties will remain significant risks.
As previously reported by the GMK Center, the Organization for Economic Cooperation and Development (OECD) has also forecast global GDP growth of 3.2% year-over-year for 2024 and 2025, driven by steady trade expansion, improved real incomes, and more accommodative monetary policies in many economies.
