WeeklyWatch – Markets defy economic gloom

11^th February 2025

Stock Take

Breaking down the UK figures

Last week was a positive one for UK investors. The fall in interest rates and FTSE 100 record highs defied the wider negativity surrounding the economy.

The UK’s December GDP figures are predicted to be revealed later this week – with low levels of optimism for growth following the pattern of recent months, where the economy has broadly moved sideways. Indeed, the Bank of England (BoE) revealed on Thursday that it expected the economy to have grown only 0.75% in 2025 – half its previous estimate of 1.5%.

Inflation remains above the BoE’s 2% target. Consequently, the spectre of ‘stagflation’ – the combination of slow growth and increasing prices – has returned. In an attempt to alleviate the threat, the BoE’s Monetary Policy Committee convened last week and opted to cut interest rates by 0.25%.

Looking for the positivity

But it’s not all bad news! The UK economy did show some signs of life. Halifax has recently reported that after a dip in December, the average UK house price reached a new record high in January of nearly £300,000. The figures may have been impacted by a rush in buyers trying to beat the stamp duty increase in April.

What’s more, since the turn of the year, the FTSE 100 has performed impressively and reached another record high on Thursday. It experienced a small drop on Friday, but even that couldn’t stop it from accomplishing another positive return over the week.

The Head of DFM research at St. James’s Place, Peter McLoughlin, said:

“Say it quietly, but there is a recovery taking place in the UK. The FTSE 100 closed at an all-time high on Thursday. Equity investors think so.”

US finances adapting to unfolding tariffs

While the BoE opted to cut their rates, the Federal Reserve decided to keep US interest rates level for now.

At the start of last week, investors had to prepare themselves for the fallout of Mexico and Canada tariffs, but then the announcement came that, after some negotiations, the tariffs would be paused for a month. Trump has since announced 25% tariffs on all imported steel and aluminium and made threats of ‘reciprocal tariffs’ on any countries that place tariffs on the US.

Steady US economic performance

Despite the uncertainty, the US economy is on steady ground at the moment. In the latest job numbers that were released on Friday, unemployment was seen to have fallen to 4% which, according to the Labour Department, is the lowest level in eight months.

Fourth-quarter 2024 earnings season has begun well. Many US companies revealed a reasonably healthy performance. Reports are in from companies representing over half of the S&P 500 market capitalisation, with more than 60% of them having beaten sales predictions and approximately 75% having beaten earnings forecasts.

EU in a tight spot

Around 3% of euro area GDP comes from exports to the US, and with the threat of US sanctions looming over them, the EU finds itself in an uncomfortable position. If they were to receive the same flat 10% tariff that Mexico and Canada are facing, it could mean a reduction in EU GDP of up to 0.5%. Already struggling with a weak economic backdrop, a move like this could place the trading bloc into recession.

But despite this uncertainty, the MSCI Europe finished the week up 0.68%. One of the significant contributions to this was the French Prime Minister, François Bayrou, getting his 2025 budget through in a minority government and surviving a no-confidence vote.

Wealth Check 

Any business is taxed on its profits – the more you make, the more you may pay.

However, the amount of tax that you’ll pay all depends on the decisions made at the very start of the business: how your company is structured and the renumeration for you and your team. While these decisions may not be set in stone, it’s important to set the right tone from the start.

First things first

Before trading commences, you must decide what kind of trading structure you’ll have. A sole trader? A partnership? A limited liability partner? A limited company?

There are tax advantages and disadvantages in each structure, and multiple ways you can extract money from the business and pay people. Although it usually falls to your accountant to explain these different trading structures, involving your financial adviser in these discussions and decisions from the beginning is highly recommended.

Getting set up

If you set up a limited company, you’ll need to consider your remuneration structure – how you and your staff are paid.

It’s salary versus dividend. On the back of a profitable year, you may decide to pay more dividends, as well as or instead of larger bonuses. However, with the recent changes to the rate of Corporation Tax, the increase in dividend tax and reduction in dividend allowance could mean that you’ll want to opt for a fixed salary structure.

Moving money tax efficiently

You also have several options if you wish to take money out of a limited company in a tax-efficient manner.

Ensuring that you’ve selected the most tax-efficient way to pay both yourself and others while also maximising pension contributions is a strong starting point.

The tax deduction benefits of pension contributions are an important consideration. For sole traders and partners, personal pension contributions are eligible for tax relief at their highest rate of income tax. An employer’s contributions are highly tax efficient as they’re usually an allowance expense for Corporation Tax and not a benefit in kind for the employee.

These are just some essentials of a strong tax planning strategy for your business. Involving all your professional advisers – your accountant, tax adviser and financial adviser – in your tax planning is key. Accountants focus on tax years, but financial advisers think in decades to ensure you and your business enjoy a long, successful future.

The value of an investment with St. James’s Place will be directly linked to the performance of the funds you select and the value can therefore go down as well as up. You may get back less than you invested.

The levels and bases of taxation and reliefs from taxation can change at any time and are dependent on individual circumstances.

In The Picture

Can the hidden opportunities of 2025 be found in smaller companies?

Smaller companies, or small caps, represent the lower end of the global stock market in terms of size and value. As of the end of 2024, they were trading at a 20% discount compared to larger firms (large caps). This marks the widest gap since the late 1990s, just before the dot-com bubble. The current disparity suggests that investors are gravitating towards larger, more established companies, leaving small caps undervalued. For long-term investors, this could present an exciting opportunity.

Past performance is not indicative of future performance.

The information contained is correct as at the date of the article. The information contained does not constitute investment advice and is not intended to state, indicate or imply that current or past results are indicative of future results or expectations. Where the opinions of third parties are offered, these may not necessarily reflect those of St. James’s Place.

Source: London Stock Exchange Group plc and its group undertakings (collectively, the “LSE Group”). ©LSE Group 2025. FTSE Russell is a trading name of certain of the LSE Group companies.

“FTSE Russell®” is a trademark of the relevant LSE Group companies and is used by any other LSE Group company under license. All rights in the FTSE Russell indexes or data vest in the relevant LSE Group company which owns the index or the data. Neither LSE Group nor its licensors accept any liability for any errors or omissions in the indexes or data and no party may rely on any indexes or data contained in this communication. No further distribution of data from the LSE Group is permitted without the relevant LSE Group company’s express written consent. The LSE Group does not promote, sponsor or endorse the content of this communication.

© S&P Dow Jones LLC 2025; all rights reserved.

Source: MSCI. MSCI makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indices or any securities or financial products. This report is not approved, endorsed, reviewed or produced by MSCI. None of the MSCI data is intended to constitute investment advice or a recommendation to make (or refrain from making) any kind of investment decision and may not be relied on as such.

 

SJP Approved 10/02/2025