Market Update – March 2025
In March, US equities continued their painful downward trend in 2025. Investor concern over US tariffs was driving much of the downward movement. In the UK, this was exacerbated by the weakening US dollar (USD) to the pound (GBP). At home, a revised (weaker) outlook for GDP growth overshadowed the Spring Statement. Markets were more positive in China, but tariff fears still hang over exporters.
UK policy
The most significant UK policy event in March was the Spring Statement. With no new tax rises announced, it was notable mostly for what it did not contain.
In particular, the possibility of a reduction in the Cash ISA allowance (e.g. to £4,000) did not materialise. However, the Chancellor stated that the government would examine the ISA structure later in the year to “get the balance right” between cash and equities.
According to Paul Johnson, director of the Institute for Fiscal Studies (IFS), this could signal the arrival of a “blockbuster autumn Budget” later in the year – when tax rises could be back on the table if the economy worsens.
The UK is currently on course to reach a post-war high for the tax take (37.7% of GDP in 2027-28). With the Chancellor likely looking at further increases, clients should consider how to use their tax-free allowances as much as possible – particularly for pensions and ISAs.
The UK economy
Leading up to the budget, there were widespread fears that the Chancellor’s £9.9bn “fiscal headroom” had already been wiped out.
The Spring Statement helped to balance the books. However, £5bn of this reinstated headroom was wiped out within 48 hours as government borrowing costs surged, with the benchmark 10-year yield rising by as much as eight basis points to 4.81.
According to the OBR, the headroom could be completely wiped out if gilt yields rise by another 0.6 percentage points. Meanwhile, the UK’s growth forecast does not look optimistic, with the OBR halving its forecast to 1%.
UK inflation is expected to rise by 3.2% in 2025 due to rising food and energy prices, possibly peaking at 3.7% mid-year. The base interest rate currently stands at 4.5%, and in late 2024, there was widespread optimism for further cuts across 2025. Now, however, optimism has gone down amidst higher global uncertainty since the US presidential inauguration.
The UK market
The FTSE 100 experienced a rather uneventful March but has otherwise enjoyed a strong start to 2025. Indeed, it was one of the best-performing global indices in Q1 2025.
However, performance has been knocked by the recent investor panic over the “Trump tariffs” introduced in early April. The FTSE 100 has been falling along with other indices in Germany, Japan and Hong Kong.
Despite this, on the global stage, UK equities still look comparatively cheap. For investors, that could offer attractive deals on UK-listed shares such as finance, oil and gas, consumer goods and mining.
These sectors offer a high degree of diversification from tech-heavy indices (e.g. the US-based Nasdaq). The UK market is also being driven by a high level of mergers and acquisition (M&As) activity. Assuming the current investor panic abates, this could help to lift prices in 2025.
The Global Outlook
Much of the narrative about the global outlook has been driven by concerns over US tariffs. On Wednesday, 2nd April 2025, President Trump announced “Liberation Day”, introducing a fresh salvo of duties on US imports.
As a result, relations have been strained between the US and its traditional allies. The EU faced a new 20% tariff and is deliberating its response. The UK has “escaped” with less harm, with a 10% import duty.
Most economists predict that Trump’s protectionism will harm the US economy. Higher prices could be passed down to consumers, and US earnings growth could be hit by thinner corporate profits. Other countries mostly also see US tariffs as harmful to the global economy.
China has been particularly vocal in its criticism, driven by fears over the possible impact on its export-led growth. Between January and early April, its economy has already faced a new 20% tariff on exports to the US. China introduced a further 34% tariff on US imports in response to Liberation Day, strengthening regional trade ties with Japan and South Korea.
Closer to home, European equities enjoyed a strong start to 2025, with investors eyeing Germany more positively. However, the Stox 600 is currently down by over 13% compared to the previous month as US tariffs bite. The continent’s outlook will depend heavily on the EU’s response to US protectionism.
