2025 marked a shift from campaigning to governing. In the US, the return of Donald Trump brought renewed focus on tariffs, while a pro-growth but debt-raising tax and deregulation package was passed. In the UK and Europe, higher spending implied higher taxes, growth slowed, and inflation kept central banks cautious. Despite a noisy political and economic backdrop, both equities and fixed income delivered solid outcomes over the year.

From campaigning to governing

With the prior year dominated by elections, 2025 was when politicians moved from campaigning to governing. In the US, Donald Trump’s return brought renewed focus on trade tariffs. In the spring, he unveiled his “fair and reciprocal” list of tariffs in theatrical fashion, triggering a bout of global market anxiety. Negotiations with major trading partners followed, and the initial proposals were ultimately diluted through exemptions, delays and carve-outs.

The year also saw the passing of Trump’s “One Big Beautiful Bill”. The legislation aimed to support growth by keeping taxes low, encouraging domestic investment and reducing regulation. The trade-off was higher government borrowing, as lower tax receipts widened the fiscal deficit.

In the UK, the new Labour government pointed to Brexit, global shocks and inherited challenges as contributors to the country’s strained public finances. While some Autumn Budget measures were softened or delayed, the direction of travel was clear: higher spending would require higher taxes. Europe, often criticised for inertia, surprised many by loosening fiscal rules and increasing defence and infrastructure spending, providing a modest boost to activity and confidence.

Economic growth slowed but avoided recession. The US cooled, Europe outperformed low expectations, and the UK muddled through. Inflation remained stubborn, particularly in services and wages, keeping central banks cautious about cutting interest rates too quickly. Looking ahead, 2026 is likely to be shaped by an unsettled political backdrop, with US midterm elections, trade and fiscal policy in focus, and UK and European governments under pressure from tight budgets, ageing populations and rising defence commitments.

Bottom line

2025 was a year where little went exactly to plan, but nothing went badly wrong either. Inflation eased but refused to disappear, interest rates fell only cautiously, and markets adapted. Looking ahead, the dominant US equity market remains richly valued and highly concentrated. Diversification across geography, sector and currency is therefore likely to remain a valuable ally for investors in 2026.

Q&A

What did fixed income do in 2025 and what should we expect in 2026?

2025 was a positive year for fixed income. Global interest rate cuts and moderate economic growth provided a supportive backdrop, while high starting yields meant returns were driven largely by income. Government bonds in the US and UK delivered returns of around 4%–6% in sterling terms. Corporate bonds returned approximately 6%–7%, while higher-risk areas such as high yield and emerging market debt delivered returns of around 10%.

Looking ahead, the outlook for fixed income remains reasonable. Yields are still attractive by historical standards and provide a useful income cushion. Further rate cuts could offer some upside, though expectations should remain measured. Bonds may not be exciting, but they have rediscovered their role in portfolios.

What did stock markets do in 2025 and what should we expect in 2026?

Global equities returned around 14% in sterling terms over 2025, with UK and European markets rising by more than 25%. The journey, however, was volatile. In early April, a second round of US tariffs triggered a sharp sell-off, with some markets falling by around 20% in just seven trading days. This was followed by a powerful rebound of 25%–40% from mid-April to year end.

Regional diversification proved valuable. The US, the standout market of recent years, underperformed most major indices, returning roughly 10% in sterling terms. The UK, Europe, Japan, China and emerging markets all outperformed, benefiting from lower starting valuations and improving sentiment. As 2026 approaches, investors are likely to focus on company profits in a slower growth environment, the impact of AI investment on efficiency and employment, and whether heavy spending by technology firms will translate into higher profits.

What did real assets do in 2025 and what should we expect in 2026?

Real assets delivered mixed results in 2025. Within commodities, precious metals were the standout performers, with gold and silver reaching record highs, supported by central bank buying and geopolitical uncertainty. Oil experienced its steepest annual decline since the pandemic, and excess supply and moderating growth could continue to weigh on prices in 2026.

Infrastructure performed well, supported by long-term themes such as AI-driven demand for data centres and power, the energy transition, and sustained government investment. However, valuations in parts of the AI-related universe now appear stretched. Real estate equities had another challenging year, held back by higher interest rates and structural shifts such as working from home. Looking ahead, lower global interest rates could reduce financing costs and provide some relief for the sector.

Month by Numbers

As at 31 December 2025

Equities

• UK: +2.24%
• Europe: +2.70%
• US: -0.02%
• Emerging Markets: +2.61%
• Japan: +0.99%

Bonds / Rates (absolute change)

• UK Base Rate: -0.25% (3.75%)
• Fed Funds Rate: -0.25% (3.75%)
• UK 10-Year Yield: +0.03% (4.47%)
• US 10-Year Yield: 0.00% (4.16%)

Currencies

• GBP / USD: +1.67% ($1.35)
• GBP / EUR: +0.35% (€1.15)
• DXY (USD Index): -1.13% (98.32)

Commodities

• Gold: +2.00% ($4,315.09)
• Oil (Brent): -3.72% ($60.85)

Noteworthy

• Silver: +21.67%