WeeklyWatch – Positive UK growth

W.24822 Wellesley WeeklyWatch 20.05.25_1420 x 474_HR

20^th May 2025

Stock Take

It was revealed last week there had been a strong growth spurt for the UK in the first quarter of 2025. It seems hard to reconcile this with the fact that just weeks ago there were concerns that the nation was headed towards a recession. While expectations seem to change almost every day, it can make people question whether it’s worth keeping an eye on the economic news…

The latest UK lowdown

Leading with the good news, in the three months leading up to March, the economy grew by 0.7%. This was up from 0.1% at the end of 2024, making the UK the fastest-growing G7 economy over that time period. The country’s growth outpaced the US, Canada, Germany and others. And it gets better: just last week the blue-chip FTSE 100 climbed 1.52% and the mid-cap FTSE 250 rose by 2.28%.

Yesterday, reports came in to say that the UK had signed a trade deal with the EU. Although details haven’t yet been confirmed, the government has said that economic growth should be further boosted.

However, in the week before, the Office for National Statistics revealed that job vacancies had fallen to 761,000 in April. This comes as less of a surprise due to the employer’s National Insurance increase and a rise in minimum wage taking effect in the same month.

US reveals mixed results

At the beginning of the month, there were growing concerns that the US was on the verge of entering a recession. The US economy had somewhat shrunk, mostly because of the ongoing disputes with China over tariffs. Additionally, the price of US government bonds (Treasuries) fell and the US dollar’s value was down.

Additionally, US credit rating agency Moody’s downgraded the US from an AAA rating to Aa1 last week, following concerns surrounding the government debt. As Moody’s was the last of a few credit rating agencies that still rated the US as AAA – S&P downgraded the US in 2011 and Fitch Ratings in 2023 – the downgrading is seen as mostly symbolic.

As mentioned above, economic behaviour repeatedly swings back and forth, and last week was no different. The de-escalation in the US–China trade war saw significant reductions in tariffs for both American and Chinese companies for a 90-day period, which consequently boosted global stock markets.

The Head of Economic Research at St. James’s Place, Hetal Mehta, says:

“We have seen financial conditions unwind because of the de-escalation. As they have loosened, some forecasters have brought their recession probabilities back down and revised up their growth forecasts.”

However, she also adds that this doesn’t mean that a continued positive direction is guaranteed; it will depend on what decisions are made next:

“We believe that from here, there’s still some two-sided risk. There might be further reductions in tariff rates, but it’s also possible that a proper deal between the US and China takes more than the 90 days to thrash out. So, you could actually see tariffs go up. And there could still be some more tariff volatility ahead either at the end of the 90-day period, or if negotiations aren’t going well.”

Expect the unexpected

Economic volatility. Political uncertainty. Tariff wars. Significant swings in the markets. It’s almost become the new norm! But if this is the new status quo, then how will our investment habits be impacted?

Although it’s worth keeping up to date with the events that can shape an investor’s financial situation, as demonstrated over recent months, sometimes choosing to do nothing can be a positive path to take during market volatility. It’s difficult to time the markets even when the environment is calmer, so an investment strategy that embraces diversification is essential, particularly when times are uncertain. As highlighted in previous editions by the Investment Research Director at St. James’s Place, Joe Wiggins, blocking out the noise rather than the markets is a wise approach:

“Periods of heightened uncertainty and market noise are incredibly challenging for long-term investors often not because of the issue that is the focus of attention but rather our behavioural response to it. When under stress, investors tend to make decisions that relieve short-term anxiety often at the expense of their long-run objectives.”

He adds that, at the risk of sounding like a broken record, taking a long-term approach when planning for the future has never been as valuable.

De-escalation remains at the forefront

Markets continue to respond well to the 90-day pause on sky-high tariffs coming into place between the US and China and continued to climb from their April lows.

Last week, the S&P 500 came close to where it started the year after rallying 5.3%. But with the dollar’s value being down, the market is still a wary area for sterling investors.

Asia

By the end of last week, the Shanghai Stock Exchange Composite was up 0.76% (1.66% in sterling terms). Hong Kong’s Hang Seng also saw a rise of 2.09% (2.15% in GBP).

There were also small gains in the Japanese market: the Nikkei 225 increased by 0.32% in sterling terms.

Europe

It was also a positive week for European markets as they also responded well to the de-escalation of tensions between the US and China. Across continental Europe, the MSCI ex UK also gained 1.53% in sterling terms.

Wealth Check

Money and mental health

There’s a close correlation between our finances and our mental health, as St James’s Place’s Financial Health Report highlights:¹

One in four people said they felt anxious about the year ahead
28% said their concern relates to rising energy bills
20% are worried they’re not saving enough for future financial security

Money is a key part of our day-to-day lives, so it’s understandable that it weighs heavily on our minds, whether we unintentionally spend more on a grocery shop, become anxious over an unexpected bill or feel alarm if we edge into the red at the month’s end. Putting things off, including checking your bank balance or avoiding bills, is common but can make the situation more difficult.

Tackling the issues head on is the best solution – creating a plan to get things back on track will help prevent the situation getting worse. Plus, being open about this with a family member or close friend can be extremely helpful.

It’s easy to feel overwhelmed when considering the bigger decisions, such as purchasing a house, changing jobs or preparing for retirement. Many of us acquire financial knowledge and habits as life goes on and often without formal training or education – learning as we go. As a result, we may feel unprepared to manage investments or effectively plan for retirement funds without putting in a lot of time and effort into conducting research. It may even be seen as boring or difficult to comprehend, which is where a financial adviser can be a real asset.

Financial advice supporting mental health

The Head of the St. James’s Place Charitable Foundation, Catherine Ind, identifies that one in four of us will experience a mental health disorder each year. She adds:

“Providing timely support is essential to reduce crisis situations and enable people to move forward in a more positive and hopeful way.”

No-one is born automatically knowing how to manage money. But acquiring more knowledge will help you feel calmer and more in control of your finances.

Financial advisers will help you make sense of your personal financial situation and guide you through practical steps to achieve your financial goals. They form lifelong relationships with clients and their families and are there to offer support with the big life decisions and challenging moments.

If you’re feeling any anxiety surrounding money, please get in touch with a Wellesley Financial Adviser today – we’d love to help!

Source:

¹SJP Financial Health Report 2025 conducted by Opinium who surveyed 6,000 UK adults nationwide in two polls between 23^rd December 2024 and 17^th February 2025. Quotas and post-weighting were applied to the sample to make the dataset representative of the UK adult population.

Previous years’ research was also conducted by Opinium – among 6,000 UK adults between 16^th and 25^th October 2023.

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.

In The Picture

The Bank of England makes another rate cut – its fourth in the space of a year, with signs of cooling inflation and increased concerns surrounding weak economic growth. This is what the cut potentially means for investors, savers and homeowners:

For the stock market, possibly good news! Cheaper borrowing allows companies to invest and grow more easily.
For savings, it’s not so great. Lower rates mean less interest paid out by the banks. This could be a good time to check what your cash is earning.
Looking for a mortgage? Two-year fixed rates are at their lowest since 2022 (Moneyfacts, 12^th May 2025). Now may be a good time to start your search!

What about the wider world? Mehta explains that it moves at different speeds:

“The European Central Bank has been the most aggressive of the major central banks in cutting rates this year, reflecting deeper concerns about growth in the euro area as well as more progress on bringing inflation down. The Bank of England is following suit, but more cautiously. Meanwhile, the US Federal Reserve is holding steady, awaiting clearer economic signals given all the tariff uncertainty.

“We may see this divergence shape global markets in the months ahead, but we think it’s unlikely any of the central banks will take rates as low as they did after the Global Financial Crisis.”

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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.

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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 19/05/2025