June 2025
Summer 2025 is ahead and before trips to the great UK outdoors are enjoyed, there is the small matter of the Chancellor’s 2025 Spending Reviews due on 11 June 2025. These reviews cover all the spending that can reasonably be planned in advance, making up about 40% of all public spending. We also have the Pensions Bill being addressed by Parliament the week before, with some sweeping changes focused in part on encouraging project / infrastructure investment in the UK. It’s going to be busy, with I am sure much devil in the detail and, of course, winners and otherwise.
As we noted in our May 2025 notes, the world of global politics has been busy in recent weeks, including for the UK. The global economy was greeted early in April 2025 by a hard-hitting range of trade tariffs from the US President, Donald Trump. The application of tariffs was no surprise; however, the number of countries and regions affected, along with the percentage applications (minimum 10% and 25% on car imports) sent many markets into significant decline, before largely recovering to pre-tariff levels. Time will tell if markets have now settled, although the recent announcement of a 50% tariff charge on steel and aluminium into the US has not helped.
With our new government now beginning to reach its first anniversary in office, trade deals have been struck, both with the US, accepting some reduced tariffs, and most recently with the EU on a significant range of topics (or at least there is an agreement to reach an agreement). As always, the devil will be in the detail of each deal, and it is already clear that there are some winners and some trade areas faring less well. Some of these factors will influence our Chancellor’s view of her next Budget, expected in October 2025. There are ongoing consultations in place to consider the application of inheritance tax to inherited pensions from April 2027 and, we understand, a consultation on ISA funding, with the limit likely to stay at £20,000, although with the possibility that the way this can be invested may be restricted for cash type plans (we understand that nothing has been decided as yet).
There is much to consider globally, with Russia and Ukraine still firmly in the news having reached well into the third year of what appears to be increasing hostilities, and the real start of negotiations being considered with the aim of bringing the conflict to an end. Let's not forget that March 2025 saw the fifth anniversary of the Covid-19 outbreak and its effects, in many situations is still being felt by individuals and business alike.
Changing of debt parameters
The objective of 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 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
Economic data from home and abroad
Mid-May saw the Office for National Statistics (ONS) confirm that the Consumer Prices Index (CPI) hit 3.5% in the year to April 2025. The large increase was expected, mainly due to household utility cost increases, but the rise was still high. 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 2.4% over the 12 months to March 2025, a decrease from the February 2025 figure of 2.8%. However, the application of tariffs has seen some predict that US inflation will rise again.
The Bank of England reduced its base interest rate in early May 2025 to 4.25% (from 4.5%). The US Federal Reserve maintained their base rate (no change from April) to a range of 4.25-4.5% in May 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 $1.35 at the time of writing (10 June 2025), still an elevated rate in 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 April 2025 figure has continued in a similar way with the statistics showing the provisional estimate as 95.5% 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 to March 2025 for the prior three months was 0.7%, with GDP growth in February 2025 alone standing at 0.5%. Many global trading areas have seen their short-term growth forecasts reduced by the OECD (Organisation for Economic Co-operation and Development) in early June for 2025 and 2026 because of the recent trade wars.
Markets factor in most things
Turning to the recent 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 05 June 2025, in comparison to a year ago, we find the following (approximate) for a range of market indices:
FTSE 100:
FTSE All Share:
Dow Jones (US):
CAC 40 (France):
Dax 30 (Germany):
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 and there is much to consider
There is, and will be, much to consider over the summer months, as stages of the journey leading to the Budget 2025 begin to be revealed.
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.
We hope that you enjoy your summer and don’t forget to use annual tax allowances where available and appropriate. We also hope that you have the opportunity for some rest and relaxation, and we look forward to working with you over the balance of the year.
Keith Churchouse FPFS
Director
CFP Chartered FCSI
Chartered Financial Planner
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