Investment Market update: March 2025

With inflation remaining high in several regions and sluggish economic growth across the board, find out how markets performed in February 2025.

5 min read

In February, US markets experienced a slight dip, while Chinese and European indices posted strong performances. Inflation remained above optimal levels in most regions, and economic growth continued at a slow pace.

Whilst this article primarily focuses on February 2025 market news, there are references to events and market performance from previous months.

US

US inflation rose to 3% in the 12 months leading up to January 2025, up from 2.9% in December 2024. This increase was primarily driven by higher energy costs, along with rising prices for used vehicles and transportation¹.

With inflation on the rise, the Federal Reserve (Fed) is expected to keep interest rates steady between 4.25% and 4.5% as it works to bring inflation back down to its 2% target².

The latest data reveals that US economic growth slowed to 2.3% in the fourth quarter of 2024, down from 3.1% in the previous quarter. The slowdown is partly attributed to harsh winter conditions and concerns that tariffs could drive up prices³.

The S&P 500 declined by 1.3% in February as concerns over mega-cap tech stocks weighed on US equities. However, year-to-date performance remains positive, with the index still up 1.4%⁴.

UK

UK inflation rose to 3.0% in the 12 months to January 2025, up from 2.5% in December 2024. The main drivers of this increase were transport, along with food and non-alcoholic beverages, while housing and household services provided the largest downward pressure⁵.

The UK economy unexpectedly grew by 0.1% between October and December 2024, defying expectations of a contraction. The modest growth was driven by strong performances in pubs and bars, as well as machinery manufacturing⁶.

After the Bank of England (BoE) reduced interest rates from 4.75% to 4.5% in February, it spoke of taking a "gradual and careful" approach to further cuts, citing persistently high inflation and sluggish economic growth⁷.

On the stock markets, the UK FTSE All-Share rose 1.3%, making it the second-best performer of the month⁸.

Europe

The annual inflation rate in the Euro Area dropped slightly to 2.4% in February 2025 from a six-month high of 2.5% in January. The slowdown was driven by weaker price growth in services and energy⁹.

The EU economy grew by 1.1% in the fourth quarter of 2024, slightly up from the 1.0% growth seen in the previous quarter. This marked the strongest growth rate since the first quarter of 2023¹⁰.

The MSCI Europe ex-UK Index gained 3.4% as investors increasingly priced in the possibility of a ceasefire in Ukraine. European financials were the strongest performers, with returns surpassing those of their US counterparts. European defence stocks also saw gains amid a renewed emphasis on domestic production¹¹.

Asia

China’s annual inflation rate rose to 0.5% in January 2025, up from 0.1% in December. This marked its highest level since August 2024.

The increase was driven by consumer spending over the Lunar New Year, as well as by the effects of the government’s stimulus measures and the central bank’s monetary policy¹².

In Japan, the annual inflation rate increased to 4.0% in January 2025, up from 3.6% in the previous month, marking the highest level since January 2023. The rise was largely due to a steep increase in food prices and the cost of gas and electricity¹³.

The MSCI Asia ex-Japan rose 1.1% over the month, driven primarily by a strong performance in Chinese equities amid the excitement surrounding the arrival of DeepSeek. Japan was an outlier in the region, with the TOPIX delivering a return of -3.8% for the month¹⁴.

What this means for you

With high inflation and sluggish economic growth in the UK, there is a growing risk that the economy will enter a period of stagflation. Despite this, markets have performed reasonably well, which means investing continues to be a strong option for preserving wealth.

If you’re interested in making further investments, the varied performance of global indices highlights the importance of diversifying investments across regions to help provide more stable and consistent returns.

Please note: This guide is for general information only and does not constitute advice. The information is aimed at retail clients only.

The content of this guide was accurate at the time of writing. While information is considered to be true and correct at the date of publication, changes in circumstances, regulation, and legislation after the time of publication may affect the accuracy of the guide.

Sources:

FP2025-135

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