As we closed out the final quarter of 2025, markets delivered another strong finish to what has been an extraordinary year. Albeit at a more measured pace than the turbo-charged gains of the summer and autumn. December was also a quieter month compared to October and November, but the underlying trends of resilient economic growth and subdued inflation, which have underpinned investor confidence and supported risk assets globally throughout the second half of 2025, were still firmly in evidence.[1]
The major events in December revolved around interest rate decisions. Both the US Federal Reserve and the Bank of England announced further rate cuts, decisions which were finely balanced we think, given that neither economy was in recession and in obvious need of assistance.[2] [3]The rationale for these cuts mainly lies in the desire to sustain economic momentum and prevent a slowdown, as inflation had fallen back towards target and growth indicators were beginning to soften. Whilst there may be scope for one or two additional reductions over the coming months, we believe the global rate-cutting cycle has probably peaked in 2025, marking an important inflection point for markets as the interest rate environment stabilises around historical norms.
By the end of 2025, the US administration’s tariff programme, arguably the headline event of the year, had also proven to be much less disruptive than initially feared. After an initial sharp sell-off in April , risk assets rebounded strongly right through to year end, as negotiated tariff levels came in well below worst-case expectations. In the eyes of many investors, the Trump administrations ‘bark’ turned out to be worse than its actual ‘bite’. Coupled with the positive influence of lower interest rates, this realisation helped sustain global growth and calm inflationary concerns, both key factors in maintaining market momentum and turning 2025 into a year of overall good performance.
