2024 was dubbed the “year of elections” with more than 60 countries, and almost half the world’s population heading to the polls, most notably in the US and the UK.
Elections bring uncertainty, with a knock-on for markets, even before the winner is announced. Maybe unsurprisingly then, 2024 saw a certain degree of market volatility. Prices dipped in August as fears of a US recession grew, and UK GDP growth stalled after a steady start to the year.
On the other hand, global and UK inflation began to stabilise, meaning the Bank of England (BoE) could begin to lower its base rate.
With inflation near to target and the economy growing, albeit slowly, there are plenty of reasons to be optimistic as we head into 2025. Here are just three of them.
1. Inflation is stabilising and forecasts are for continued drops to the base rate in 2025
The Consumer Prices Index (CPI) peaked at 11.1% in October 2022 amid the UK’s so-called “cost of living crisis”. Since then, though inflation has been generally falling, in May 2024, inflation returned to the BoE’s 2% target for the first time since the summer of 2021.
Source: Office for National Statistics (ONS)
As we know, the BoE uses its base rate as a tool to manage inflation. For this reason, the base rate – and so the cost of borrowing – increased throughout 2023 before plateauing at the start of 2024. Since July it has been slowly coming down and it is expected to continue to fall in 2025.
Source: BoE
Financial forecasting is never easy, though, and there is no consensus on how many rate cuts we might see, or where the base rate will land by December 2025.
Morningstar recently compiled a list of base rate predictions, which suggest we could see between three and five base rate cuts.
The fact that the rate has begun to drop is good news for borrowers and demonstrates increased confidence from the BoE that inflation is stabilising. This has already been reflected in the cost of borrowing.
2. Good news for borrowers and homeowners as 2025 could see mortgage rates fall
According to the BBC, around 600,000 UK homeowners have a mortgage that “tracks” the base rate, meaning that drops in 2025 should have an immediate effect on monthly repayments. If you have a fixed-rate mortgage, though, you’ll need to wait and see what rates are on offer when your deal ends.
In the month following Liz Truss and Kwasi Kwarteng’s mini-budget back in 2022, the average rate for a two-year fixed mortgage increased from 4.74% to a peak of 6.65%. This average has now dropped to 5.46% (and to 5.23% for a five-year fixed deal).
The Times Money Mentor confirms that 2025 is expected to bring a gradual improvement in mortgage affordability, which is great news for UK homeowners.
On average, around 800,000 fixed-rate mortgages that currently enjoy a rate of 3% or below are due to end each year, until December 2027. This could mean that even falling rates leave you with higher payments when you come to look for a new deal, so be sure to start searching – and budgeting – early.
3. The UK economy is expected to grow in 2025 but remember that your plans are aligned with longer-term goals
UK GDP began 2024 strongly before stagnating in the second half of the year. Forecasts are for small growth overall in 2024 with larger increases predicted for 2025.
UK Parliament confirms that the OECD recently increased its forecast from 1.2% to 1.7% growth, while the IMF expects growth of 1.5%.
This is good news for employment figures, earnings, and the likelihood of pay increases in the year ahead.
As with all of these forecasts and predictions, though, it’s important to remember that they are looking at the short term. You can, and should, largely avoid the noise of daily stock market changes and sensationalised headlines. Your financial plans are long term, and your ultimate goal may still be decades away.
Be sure to stay focused on your goals. External factors like global conflicts, elections, and governmental changes can create turbulence in the short term, but if your goals haven’t changed, then your plan doesn’t need to either.
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At Jane Smith Financial Planning, we complete regular reviews to ensure your plans remain on track, allowing you to stay calm and in the present.
If you’re looking for advice or reassurance from an independent financial adviser in Milton Keynes or Olney, look no further. At Jane Smith Financial Planning, we’ve been helping clients for 30 years, so contact us at info@janesmithfinancial.com or call 01234 713131 to see what we can do for you.
Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
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