This week, we examine some of the latest economic headlines, both at home and overseas, and explore how they could impact your finance and investment activity heading into February 2025.
Expect to read about the Federal Reserve’s cautious stance on interest rates, as Powell signals there’s “no rush” to cut further. Meanwhile, the eurozone faces fresh economic struggles, with Germany and France contracting in Q4, reinforcing expectations of ECB rate cuts.
Closer to home, the UK housing market is off to a strong start in 2025, with sales up 12% year-on-year and UK venture capital ends Q4 strong pushing investment to £15.5bn.
Read on for a deeper dive into these key developments and their potential impact in the coming months.
U.S Federal Reserve decides to hold rates
- The Federal Reserve decided to keep interest rates at 4.25%-4.50%, with Chair Jerome Powell stating there isn't any rush to cut them further. Inflation has shown some improvement, while unemployment has remained stable for six months, leading the Fed to maintain its current stance.
- Donald Trump's return to office undoubtedly brings economic uncertainty, as all changes in administration do. However, proposed policy changes including tariffs, tax cuts, and stricter immigration rules are shaking forecasts up more than usual.
- Whilst Powell avoided direct comments on Trump’s remarks, he acknowledged that the Fed is waiting to see how these policies could affect inflation and employment metrics.
- Despite three previous rate cuts in 2024, inflation has stalled. Although far below post-pandemic highs, inflation remains around 0.5% above the Fed’s 2% target, prompting a cautious approach before any further cuts, similar to what we are seeing here in the UK.
- Powell warned against cutting rates too soon, stating that easing policy too quickly could reverse progress on inflation. The Fed now expects only two quarter-point cuts in 2025, with markets predicting the next reduction will not come before June.
- Markets reacted with uncertainty—stocks closed slightly lower, bond yields remained steady, and the dollar held firm. Investors had widely anticipated the Fed's decision, but questions remain over how much further rates may fall this year.
- "The Fed seems to think the economy is stuck with a low unemployment rate and elevated inflation. The statement could be read to be mildly hawkish, suggesting that a little jolt to rates could kick the economy out of this equilibrium." - Brian Jacobsen, chief economist at Annex Wealth Management
UK venture capital finishes 2024 strong
- 2024 seemed a turbulent year for venture capital investment, as major elections and political shifts all over the globe undoubtdly created uncertainty. Many investors seemed to initially hold back, waiting to see how global and local events would unfold before making big decisions.
- Despite this, the year ended on a very high note, with businesses successfully securing funding with similar momentum carrying into early 2025. The latest KPMG Venture Pulse report showed the UK attracted the highest level of VC investment in Europe, thanks to a strong final quarter.
- UK VC investment reached £15.5bn, with Q4 funding jumping by more than a third from £3.1bn to £4.4bn. The late-year rebound has boosted optimism among both investors and founders, with tech in all sectors expected to remain a key focus in 2025.
- However, some analysts remain cautious, noting that global events—including UK Budget measures and a new US president—could still temper investor confidence.
- Rising interest in regional investment reflects firms seeking opportunities beyond London, driven by larger funding pots and the appeal of offering employees a different quality of life. Venture capital-backed firms remained the primary recipients of funding, continuing a trend seen throughout 2024.
- "The year finished strong, helping carve out an optimistic view for businesses looking to secure investment and for investors searching for the next big thing."
Eurozone economy faces economic growth challenges
- The eurozone economy stalled in Q4 2024, as Germany and France posted unexpected contractions, reinforcing concerns over ongoing economic weakness. GDP remained flat, falling short of the 0.1% growth forecast and marking the worst performance since late 2023.
- Across the EU, not including the UK, GDP edged up 0.1% quarter-on-quarter, with annual growth reaching 0.9% in the euro area and 1.1% in the broader EU. Germany’s economy shrank by 0.2%, while France contracted by 0.1%, Italy remained flat for the second quarter in a row and Ireland saw the steepest decline at -1.3%.
- Some peripheral economies performed better, with Portugal leading growth at 1.5%, followed by Lithuania (0.9%) and Spain (0.8%).
- The weak GDP data has strengthened expectations for a European Central Bank rate cut, with markets pricing in a 25-basis-point reduction to 2.75% today and four cuts expected by the end of 2025.
- "The eurozone economy is fragile, facing stagnant growth and rising recession risks. Q4 GDP data confirms near-zero growth, and PMI surveys indicate ongoing manufacturing contraction. In contrast, the US economy remains robust, driven by consumer spending, a tight labour market, and AI-driven investment.” said Boris Kovacevic, Global Macro Strategist at Convera.
UK housing market starts 2025 with momentum
- The UK housing market looks to be off to a strong start in 2025, with sales agreed up 12% compared to last year, according to data from Zoopla. More homes are also coming onto the market, with listings 10% higher than this time in 2024 – the highest level in seven years.
- As a result house prices are creeping back up, with annual growth now at 2%, a big shift from the -0.9% decline seen a year ago. Northern Ireland (7.7%) and the North (3.2%) are leading the way with London and the South East seeing slower rises, at less than 1.5%, as affordability pressures keep a lid on price jumps.
- The looming stamp duty changes in April have lit a fire under first-time buyers, pushing demand up over 33% in the last few months of 2024. Those buying homes between £300,000 and £625,000 are particularly keen to move before the tax relief ends. In London, for example, the increase will add an extra £6,000 in costs for someone buying a £420,000 home, while in the South East, it’s around £1,625 for a £332,500 property. That said, three in five first-time buyers will still pay no stamp duty at all, even after the changes.
- Zoopla’s Consumer Tracker shows that over 20% of renters now plan to purchase a home, making them the biggest group of buyers this year. With mortgage rates likely to fall later in the year and renting costs still sky-high, many are eager to make the jump onto the property ladder.
- “2025 has started well, better than both 2024 and 2023, which is a positive sign for the rest of the year,” says Richard Donnell, Executive Director at Zoopla. “Even with the stamp duty changes, rising incomes and potential base rate cuts should keep the market moving.”
Final Note
This week’s updates highlight mixed progress across key global economies. The FED’s decision to hold rates signals a cautious, balanced stance, while expectations for rate cuts in the Eurozone, prompted by disappointing economic growth, point to deeper challenges in some regions.
On the UK front, the housing market has started 2025 with strong momentum, and with potential rate cuts on the horizon, this positive trend seems likely to continue. Meanwhile, venture capital markets have shown resilience, closing out 2024 on a high note despite a turbulent year.
Overall, while global challenges persist, there are notable signs of resilience in key sectors. The coming months will see central banks, investors, and policymakers navigating an increasingly complex landscape.