Chapters Financial - Investment House View

April 2025

With Easter behind us and a new tax year (2025/2026) in progress, the global economy was greeted early in the month by a hard-hitting range of trade tariff applications 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. And just as fast as the tariffs arrived, they were suspended for 90 days for most countries, except, importantly, China. Indeed, in the subsequent spat, the tariffs between both major powerhouses increased. Markets rallied briefly on the announcement of the pause, although this is not a guarantee of future performance. Indeed, the first 10 days or so of April 2025 has been quite the rollercoaster, creating some fear for investors.

There is much to consider globally, with Russia and Ukraine still firmly in the news having reached the third year of hostilities. Let's not forget that March 2025 saw the fifth anniversary of the Covid-19 outbreak and its effects.

With our new government now having reached its first nine 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 with introduction of means-testing for the winter fuel payment. 26 March saw this year's Spring Statement, which confirmed government spending cuts but did not introduce any further tax changes. However, rumours abound as to whether the Budget expected later this year will see additional tax changes announced.

Many might suggest that the Budget announcements in late 2024 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 now dealing with the National Insurance increases applied from April 2025, along with the increases in the minimum wage. Some consequences are already being seen.

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 April saw the Office for National Statistics (ONS) confirm that the Consumer Prices Index (CPI) hit 2.6% in the year to March 2025, a slight (and some might argue temporary) reduction on the prior month of 2.8%. 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 February 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 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 $1.29 at the time of writing (10 April 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 March 2025 figure has continued in a similar way with the statistics showing the provisional estimate as 95.8% 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 February 2025 for the prior three months was 0.6%, with GDP growth in February 2025 alone standing at 0.5%.

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 10 April 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 start the new tax year 2025/2026

There is much to consider as we start the new tax year 2025/2026.

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.

However you plan your Easter break (if you have one), we hope that you have the opportunity for some rest and relaxation, and we look forward to working with you in this new tax year 2025/2026.

Keith Churchouse FPFS
Director
CFP Chartered FCSI
Chartered Financial Planner

Chapters Financial Limited is authorised and regulated by the Financial Conduct Authority, number 402899