This week, we take a look into the surge of U.S. foreign direct investment, highlighting its growing dominance in key sectors like semiconductors and renewable energy. We’ll then look at the record-breaking performance of the FTSE 100, driven by major players, and the strong outlook for UK housing in 2025. As the UK’s economic landscape shifts, we explore the latest pay growth trends, housing market activity, and the potential impact of inflation on future Bank of England decisions.
Read on for insights into how these key developments are shaping both domestic and international markets.
U.S. Cross-Border Investment Surge
- The U.S. share of global foreign direct investment (FDI) reached a record 14.3% by November 2024, up from 11.6% in 2023, highlighting robust economic momentum compared to Europe and China according to fDI markets.
- The U.S. secured over 2,100 greenfield projects, far surpassing China (under 400 projects) and Germany (470 projects), which saw significant declines. Economists attribute this to geopolitics and Western nations’ “de-risking” from China, alongside Europe’s energy price surge post-Ukraine invasion.
- Semiconductors, renewable energy, and aerospace led the surge in U.S. FDI, with total project values exceeding $227 billion. IMF forecasts also show that U.S. GDP growth will outpace the Eurozone in 2025, at 2.7% versus 1%.
- Analysts point to reshoring and "friend-shoring" trends as companies aim to secure supply chains in strategic sectors like healthcare and microchips. U.S. policies incentivizing domestic production contributed to the lowest U.S. outbound FDI in nearly two decades.
- Western Europe was the main contributor to this increased FDI, accounting for 62%, up from 58% pre-pandemic. This could potentially signal stronger transatlantic ties amid rising trade tensions with China.
- Trump’s election “doesn’t change the investment incentives and the economic picture” for investors, said Richard Bolwijn, head of investment research at UN trade body Unctad’s investment and enterprise division. “From that perspective, the attractiveness of the US for world investment will continue to go up.”
FTSE 100’s Record Growth
- The FTSE 100 recently hit a new high of 8,548.59, gaining 4.2% year-to-date compared to the S&P 500’s 1.9%. Analysts speculate it could reach 9,000 in 2025 due to undervalued UK stocks, with predictions driven by potential BoE rate cuts.
- A big contributor to this rise comes from FTSE heavyweights like BP and Shell, following a 7.7% increase in oil prices this month. Similarly, banking stocks showed robust growth, with Barclays alone gaining 9% this year, reinforcing the index’s upward trajectory.
- Global investor sentiment favours the FTSE 100 due to its high dividend yield and currency benefits from a 9% weaker pound against the dollar with over 70% of FTSE earnings being generated overseas, enhancing profitability.
- Analysts highlight cyclical benefits from rising global demand, especially from China, and the index’s exposure to mining and commodity stocks. The potential for inflation to return globally could further aid the FTSE.
- Predictions suggest the FTSE could surpass 10,000 by 2026, depending on continued strong performance from commodities and banks. However, the possibility of stagnation remains if global conditions shift unfavourably.
- “The FTSE 100 is effectively a global metric,”said Jonathan Unwin of Mirabaud Wealth Management, emphasizing its resilience and global exposure despite domestic economic concerns.
UK Housing Market Growth
- The UK housing market started 2025 with a surge in activity - new listings rose 11%, sales agreements increased by 11%, and prices jumped 1.7% to an average of £366,189, the largest January increase since 2020.
- A massive driver was buyers’ confidence, which improved with falling interest rates, now forecast to drop further after inflation fell to 2.5% in November. However, average prices remain £9,000 below the May 2024 peak due to affordability concerns.
- Rightmove predicts a 4% annual price rise, driven by increased competition among sellers. Yet, overpricing remains a risk, particularly for those optimistic about continued demand growth.
- Upcoming changes to stamp duty in April are still likely to challenge first-time buyers in higher-priced areas, though cheaper regions may remain unaffected.
- “New sellers have started the year with a bang,” said Colleen Babcock of Rightmove. “However, competition and rate fluctuations may temper optimism”
UK Pay Growth and Economic Dilemmas
- UK pay growth accelerated to 5.6% in the three months to November 2024, surpassing October’s 5.2% figure.
- Unemployment ticked up slightly to 4.4%, indicating a cooling labour market, with job losses linked to higher borrowing costs and employers facing rising costs while grappling with constrained consumer demand.
- Interest rate expectations have shifted; financial markets predict 2-3 BoE cuts in 2025 but volatility in bond markets has created uncertainty around the timing and impact of these looming decisions.
- Higher borrowing costs have impacted mortgage affordability, feeding into the broader economic uncertainty with analysts warning that this dynamic could further pressure demand and wage growth, creating a spiral.
- “The full impact of the changes to national insurance and the minimum wage, announced at the budget, won’t be fully seen until later in the year” said Jane Gratton, the deputy director of public policy at the British Chambers of Commerce.
Final Note
This week’s updates underscore a period of significant change across global investment and UK economic landscapes. The U.S. continues to dominate foreign direct investment, with a record 14.3% global share, driven by reshoring and strong sectoral growth.
Pay growth in the UK has reached 5.6%, indicating economic resilience, but the pressure from higher borrowing costs and inflation remains a concern. As the Bank of England prepares for potential interest rate cuts, the outlook is mixed, with some sectors set to benefit while others may struggle under the weight of ongoing volatility, with tech-based companies likely to come off better than physical brick-and-mortar based firms.
Looking ahead, the UK’s economic strategy in 2025 will be critical. The ability to navigate these challenges while seizing growth opportunities in both traditional and emerging sectors will determine the nation’s competitiveness. Economic stability and continued investor confidence will remain critical moving forward.