There are a few reasons to be cautiously optimistic about the prospects for our money in the year ahead.
It goes without saying that 2024 hasn’t been an easy year for our money.
However, there are some positives on the horizon.
Here are some financial reasons to be upbeat about the prospects for 2025.
Inflation is easing (slowly)
Inflation has been easing over the past 17 months, which has provided some much-needed bit of respite following a long period of sky-high price rises.
In fact, some prices have actually fallen: food prices are now 0.6% lower than they were this time last year, according to figures from the British Retail Consortium.
Non-food item prices are also 1.8% lower than they were last year, with discounting due to Black Friday and Cyber Monday.
However, inflation has been picking up again slightly more recently.
Figures from the Office for National Statistics show that, in October, Consumer Price Inflation was at an annualised rate of 2.3%, higher than the 1.7% registered in September and slightly higher than analysts’ expectations.
It’s thought to have been due to the rise in domestic energy bills this year.
Unfortunately, it’s also likely that inflation could be stoked again due to concerns about incoming President Donald Trump’s plans to introduce trade tariffs.
Trump wants to put 60% tariffs on goods from China and 20% on those from other countries, including the UK, to encourage US people to buy American goods.
These could increase the price of many goods and lead to a global trade war.
Inevitably, these price hikes will be passed onto the customer.
Let’s hope Keir Starmer’s Government can head this off - for the UK at least - through diplomatic means.
Graph: CPI inflation between 2022 and 2024 (source
Mortgage rates expected to fall
The financial markets have widely been expecting further interest rate cuts, following the two cuts by the Bank of England this year.
Analysts at investment house Vanguard expect the Bank of England to trim rates “more aggressively” next year, with them ending at 3.75% by the end of 2025.
Unexpectedly, despite the interest rate cuts this year, mortgage rates have actually increased recently, with many sub-4% rates disappearing from the market.
Industry commentators say this is due in part to an increased number of mortgage applications raising administrative costs for lenders and a rise in inter-bank lending rates.
However, as we said above, some economists think Trump’s return to the White House could push inflation higher, which could eventually lead to higher mortgage rates.
Paul Dales at Capital Economics, for example, thinks higher inflation could put pressure on UK gilt yields and mean higher mortgage rates.
Greater global inflation could mean the Bank of England is less inclined to cut interest rates.
Energy prices should fall next year
The price of energy has been a concern for many over the past three years, with the energy crisis fuelled by the Russian invasion of Ukraine meaning many customers were unable to switch tariffs.
Once again, we now at least have more choice over which supplier and tariffs we can sign up to.
Plus, while energy bills are expected to rise again in the New Year, they are forecast to fall over the course of 2024, which will be good news for many of us.
The Energy Price Cap, which covers England, Wales and Scotland, is set to increase in January.
From 1 January to 31 March 2025, gas prices will be capped at 6.34p per kilowatt hour (kWh), and electricity at 24.86 per kWh.
That means the typical annual bill for a dual-fuel household paying by direct debit will rise by around £21 to £1,738 a year from the previous Energy Cap.
However, the good news is that energy consultancy firm Cornwall Insight expects prices to fall slightly in April and again in October 2025.
This – if it transpires – should give us all our wallets some much-needed relief.
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Good news for savers?
Given interest rates are not expected to dip as sharply as previously thought next year, this could be good news for savers concerned about the interest paid on their nest eggs.
According to data service Moneyfacts, there are currently 1,629 savings accounts on the market that could help savers beat inflation, although this is slightly fewer than there were before the Bank of England’s decision to cut the Base Rate to 4.75% from 5%.
More market certainty following elections
It might not feel like it yet, but the fact that two major global elections are now out of the way provides a certain degree of certainty about the near future – whether you are pleased with the outcomes or not.
Stock markets hate uncertainty, which can make them volatile. Volatility is good for derivatives traders but bad for investors.
While some people may be unhappy about certain aspects of the Labour Government’s recent Budget, and the prospect of a second Trump presidency in the US, what it does give the markets is a nominal amount of certainty, which should be good news for investors.
Trump often trumpeted the strong performance of the US stock markets during his first term.
Indeed, the S&P 500 grew by 67% from his inauguration to his last day in office in 2021, despite the lows of the Covid-19 pandemic, although economic activity in the US remained below pre-pandemic levels.
However, it actually performed better under Barack Obama – rising 85%.
Meanwhile, the FTSE 100 grew by 47% from 4,455.6 to 6,549.6 under Tony Blair’s 10 years as prime minister, so we could expect decent growth under Labour.
However, this did encompass the Dotcom boom and bust, while his successor Gordon Brown soon found himself presiding over the subsequent financial crisis of 2008.
But, certainly, the UK economy is now forecast to grow more than previously expected next year thanks to measures taken in the recent Autumn Budget.
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