This podcast isn’t personal advice. If you’re not sure what’s right for you, seek advice. Tax rules can change and benefits depend on personal circumstances.
This podcast isn’t personal advice. If you’re not sure what’s right for you, seek advice. Investments rise and fall in value, so investors could make a loss. Tax rules can change and any benefits depend on your personal circumstances.
Intro
[0:08] Susannah Streeter: Hello and welcome to Switch Your Money On with me, Susannah Streeter – Head of Money and Markets here at Hargreaves Lansdown.
[0:14] Sarah Coles: And me, Sarah Coles – Head of Personal Finance – and let me be the first to say, ‘Happy New Year!’
[0:20] Susannah Streeter: Happy New Year to you too. Technically, you were bound to be the first to say it because we are recording this episode in the last dregs of 2024 – but, by the time you’re listening, we’ll be all refreshed and ready to welcome in the new year!
I have an inkling that, for me, it’ll start how it ended with not enough sleep and regretting that last glass of red!
[0:40] Sarah Coles: We’re gonna go from your crystal glass to my crystal ball, now! After another fairly turbulent 12 months, people will be wondering what the next year holds in store. So, we’re channelling Mystic Meg and looking ahead in an episode we’re calling ‘A Prognosis for 2025.’
[0:56] Susannah Streeter: We’ll be looking at some of the forces afoot in the world economy – and some of the changes that could be on the way in the UK too – including in terms of our personal finances and house prices.
I’m pleased to say Helen Morrissey – our Head of Retirement Analysis – is in the studio, and she’ll be talking about the pensions changes to come.
[1:16] Helen Morrissey: Always a pleasure to talk pensions with you, Susannah.
[1:21] Susannah Streeter: Plus, Matt Britzman – Senior Equity Analyst here at Hargreaves Lansdown – will take a look at the companies that are worth watching in 2025 and beyond. And Emma Wall – our Head of Platform Investments – will delve into some funds to watch.
Market volatility
[1:35] Sarah Coles: But, Susannah, I know you’ve been building a picture of what 2025 is likely to look like for the world economy.
[1:41] Susannah Streeter: I certainly have. Volatility is set to be the name of the game in 2025, with both shares and bonds set to be jumpy over the next 12 months during President Trump’s first year back in The White House – and investors will be bracing for an escalation of trade wars.
So, let’s take a quick recap – because, during Trump’s first term as President, he sent some pretty seismic tremors through the global trade system – pulling out of the Trans-Pacific Partnership pact and breaking World Trade Organisation rules by unilaterally imposing tariffs on China.
The aim was to reduce the US deficit and bring manufacturing jobs back to the USA. Did it materialise quite in that fashion, Sarah?
[2:32] Sarah Coles: Not quite! China retaliated – and studies show that up to 250,000 jobs were lost instead, and they led to a 1.4% decline in manufacturing employment in the US. There’s also a warning that a fresh round of Trump’s policies could be inflationary.
[2:49] Susannah Streeter: The Peterson Institute for International Economics has estimated that, if his threats to ramp up tariffs materialise, consumer prices would jump higher – and inflation could head up to between 6% and 9% by 2026.
This is because higher tariffs on imported goods would push up prices in the shops in the US, and there is a chance that inflation could be exported to other countries due to the effect on the dollar.
[3:18] Sarah Coles: Trump has said he wants to see a weaker dollar to boost US exports, but higher inflation usually prompts the Federal Reserve to raise borrowing costs. Interest rates have been coming down, but they might do so more gradually, which is likely to drive the dollar higher.
Once other countries start to feel the onerous effects of tariffs on their economies, there may be more demand for the dollar – it’s considered to be a safe haven. A stronger dollar is likely to make US exports less competitive, globally.
[3:43] Susannah Streeter: But it’s not all clear-cut. The Governor of the Bank of England has said that the UK may avoid the worst effect of tariffs as services make up the majority of UK exports into the US, which are less likely to be targeted. Currency changes may have an inflationary impact, but there’s also the potential for manufacturers around the world to reduce prices to offset higher tariffs in the US.
Already, US indices have headed higher on a wave of speculation about the potential for deregulation and tax cuts – and the 47th President of the United States’ impact could be positive for smaller companies. Trade tariffs favour domestic businesses over international conglomerates, and smaller companies are usually more domestically-focused.
[4:34] Sarah Coles: Yes – and China looks set to be bracing for a potential impact from Trump’s trade tariffs, and it’s taking steps to try to boost domestic demand. Earlier in December, the Communist Party’s politburo said it would take steps to vigorously boost consumption.
China’s economy has been weighed down by sluggish demand and an ongoing property crisis. There’s now a quickstep-dance underway, involving looser monetary policy and some fiscal move to try and kickstart momentum and make the economy less reliant on exports.
[5:05] Susannah Streeter: Moving towards oil, now. When it comes to energy, Trump in The White House is set to be a net positive for traditional energy.
Given his ‘America First’ mantra, another Trump presidency is likely to place emphasis on energy independence and his policies are likely to favour fossil fuels, prompting deregulation in the oil, gas, and coal industries.
This could lead to a surge in new drilling projects and infrastructure development, benefitting companies involved in traditional energy sectors.
However, given all that extra supply – and given that OPEC member countries are also likely to increase production next April – it does look likely that oil prices would be lower.
If fresh tariffs have a slowdown effect on the global economy – as predicted – that could also drag crude prices down further. However, if conflict continues in the Middle East, it’s likely to keep a floor under prices, with so much uncertainty still washing around the region.
Mortgage rates & tax rises
[6:07] Sarah Coles: So, the global economy faces its share of uncertainties, but we wanted to cover a couple of things closer to home. First, it’s house prices.
Forecasting is never an exact science, but we can expect three things to move the market in 2025. The stamp duty holiday is ending on 31st March – and it means buyers may well rush for the window before it closes, which could push prices up. It’s unlikely to come close to having the impact of the stamp duty holiday during the pandemic, but it’s very likely to boost sales. Once the deadline passes, we can expect a lull because so many people have brought their purchases forward.
[6:39] Susannah Streeter: Where we go from here hangs in the balance.
One thing working against the market is that prices are just so high. This has priced people out of the market – and will continue to do so. Yet, there are enough positives that mean, on balance, we should see some strength in property. Since the last peak, wages have been growing faster than inflation, which helps boost affordability. Meanwhile, mortgage rates are likely to ease a little, given that the market expects interest rates to end 2025 round about 4% – down from 4.75% today.
Now, it doesn’t mean a runaway market in 2025, but it does mean that early forecasts that prices could rise 4% don’t look wildly ambitious.
[7:25] Sarah Coles: Another key time of the year, as usual, will be what’s become known as ‘Awful April,’ which is set to bring another round of rises. Councils can hike tax by up to 4.99% this year without holding a local referendum. Car tax, meanwhile, will rise in line with the Retail Price Index and car tax on electric vehicles comes into effect.
The TV licence will rise with inflation – the average water bill is set to rise by about £28 to £473 a year, and air passenger duty will rise.
[7:56] Susannah Streeter: The earnings threshold at which employer National Insurance is paid will drop from £9,100 to £5,000 – and the rate will rise from 13.8% to 15%. This will cause issues for employers rather than employees on day one, but it could mean lower employment and wage rises in the future. It could also create more pressure for price inflation.
[8:23] Sarah Coles: On the flipside, the National Living Wage: that’s for those over the age of 21. That’s going to rise from £11.44 to £12.21 an hour – and the minimum wage for younger people will see even bigger hikes, in a move towards a single minimum wage. Plus, we’ll get an updated energy price cap – which, at the moment, is forecast to fall slightly to £1,713 a year.
Pension planning: Helen Morrissey
[8:44] Susannah Streeter: Of course, there’s also pensions to consider – so this is a good time to bring in Helen Morrissey – our Head of Retirement Analysis. So, what do we have to look forward to, from a pensions point of view, in 2025?
[9:02] Helen Morrissey: Quite a lot, I reckon. The Government will press ahead with its pensions review, which is aimed at boosting investment in the UK, increasing returns, and making sure the system works as efficiently as possible. The work is to be carried out in two phases, with the first phase around investment going on right now.
[9:22] Sarah Coles: Is this what was announced in the Mansion House reforms last November?
[9:26] Helen Morrissey: Yes, it is. So, under these reforms, the assets of the 86 local government pension scheme authorities would be consolidated into eight so-called pools. Added to this, we will see major consolidation of the defined contribution market into fewer, larger pension schemes.
[9:45] Susannah Streeter: So, what’s the thinking behind that?
[9:48] Helen Morrissey: The Chancellor is taking inspiration from markets like Australia and Canada which have fewer, larger schemes and can invest in more liquid assets, such as infrastructure and private equity. By enabling UK pension schemes to invest in these assets, the Chancellor hopes to not only boost people’s pension incomes through better returns, but also the UK economy. Plus, the schemes can take advantage of economies of scale.
It’s a huge piece of work – and the Government is keen and working with the entire industry on how it might work best.
[10:23] Sarah Coles: You mentioned that the review is to be conducted in two phases – so what’s the second one?
[10:27] Helen Morrissey: The second phase is all about adequacy – so making sure that people have enough to live on in retirement. There’s big questions to be asked here, most notably around auto-enrolment and whether current minimum contributions are enough. There are some tough questions to be asked here.
We were expecting this second phase to kick off relatively soon, but there have been some recent reports that it could be delayed.
[10:52] Susannah Streeter: And what about the State Pension? That plays such a major part in people’s retirement incomes, doesn’t it?
[10:59] Helen Morrissey: You’re absolutely right. I often say the State Pension forms the backbone of people’s retirement income. However, with an ageing population, the bill is growing – and these costs need to be managed.
One option the Government has used in the past has been to increase State Pension age – and it is currently due to rise to 68 by the mid-2040s. However, healthy life expectancy data shows that, while we are living longer, we aren’t necessarily living for longer in a healthy state. Recent data puts healthy life expectancy at around age 63 – so this makes further increases in State Pension age more challenging.
The State Pension should certainly be made part of a review, so that we can make sure that it’s put on a long-term, sustainable footing – so that people can make plans with certainty as to what they’re gonna get and when.
[11:51] Susannah Streeter: Thanks, Helen – there’s plenty to keep an eye on for 2025.
Share investment opportunities: Matt Britzman
And that’s not all – because, at this time of the year, we’re also looking ahead to the stocks that are worth watching in the year ahead.
So, it’s time to bring in Matt Britzman – Senior Equity Analyst here at HL – who’s been looking out for those stocks to watch. So, what’s first up, Matt?
[12:16] Matt Britzman: First up is Croda, which is known for creating innovative chemicals for industrial, life sciences, and consumer care. They played a standout role in the COVID-19 vaccine rollout – which gave them a temporary boost – but weak demand in personal and crop-care segments has been a challenge more recently.
The good news is that we think a recovery could be on the cards, as market conditions are improving – and Croda’s focus on sustainable ingredients and medical research aligns with long-term trends.
[12:49] Sarah Coles: And you’re sticking with healthcare for the next name.
[12:52] Matt Britzman: Yes – the second is GSK. This pharmaceutical giant has been a steady performer, upgrading its guidance twice this year, despite some challenges. GSK’s strength lies in its R&D pipeline, which has delivered 11 positive late-stage clinical updates, with five major product approvals expected next year.
HIV treatments remain a cornerstone – contributing about 20% of revenues – while the growing Oncology division adds extra potential. The Zantac litigation risk has eased, but concerns linger about US vaccine sales.
[13:30] Susannah Streeter: And you have something from the financial world next, don’t you?
[13:33] Matt Britzman: Yes – we have London Stock Exchange Group – and it’s more than just a Stock Exchange! It’s a leader in financial data and technology. After acquiring Refinitiv, most of its revenue now comes from financial tools and services.
It’s those more diversified income streams that make it resilient – and it’s focused on cloud solutions and automation supports growth. Analysts predict profitability improvements, although regulatory challenges and ongoing tech investments are key risks to watch.
[14:04] Sarah Coles: Thanks, Matt. Let’s move to overseas names – who’s up first?
[14:08] Matt Britzman: So, moving overseas – we have Airbus – the global aircraft manufacturer. This market is dominated by two firms, but Airbus is in a strong position following its rivals’ recent struggles. Airlines are upgrading fleets, post-COVID – and Airbus has a record order backlog of over 8,500 aircraft – that’s 11 times its expected deliveries this year – which provides excellent revenue visibility.
However, supply chain issues are slowing production – and management expects this to linger until about 2026. Airbus’s Space division has also faced challenges, but profitability is forecast to rebound by around 37% in 2025 across the business. With strong cash reserves, Airbus has a long growth runway ahead, though turbulence is likely.
[14:58] Susannah Streeter: And finally, you’ve gone for a company that’s expanded hugely in recent years!
[15:03] Matt Britzman: Yes – NVIDIA, which has almost single-handedly invented the way we build computers to manage AI workloads – which unlocked enormous growth for the business – but, with revenue expected to come in at a staggering $129bn this year, you could rightfully ask, ‘Where does it go from here?’
The company sees a £1tn opportunity in upgrading outdated data centres – and expanding AI infrastructure – and we think new cloud deployments could generate a similar sized prize.
Supply constraints and rising competition are hurdles, but NVIDIA’s technological edge and financial strength make it tough to beat. Sustaining this trajectory will be key. As they say, the higher you climb, the higher you fall.
[15:47] Sarah Coles: Thanks, Matt – it’ll be interesting to see how all these companies get on.
Remember, investing in an individual company isn’t right for everyone – because, if that company fails, you could lose your whole investment. If you cannot afford this, investing in a single company might not be right for you.
[15:58] Susannah Streeter: You should make sure you understand the companies you’re investing in – and their specific risks. You should also make sure that any shares you own are part of a diversified portfolio.
[16:08] Sarah Coles: This isn’t personal advice or a recommendation to buy, sell, or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment.
Fund investment opportunities: Emma Wall
[16:18] And, while we’re in the mood to look ahead, it feels like a good time to speak to Emma Wall, who’s been identifying funds to watch for 2025.
So, Emma – what do you have?
[16:29] Emma Wall: I’m only going to reveal three of the five today – you’ll have to go to HL.co.uk for the others – but I am gonna cover a few of our themes for the year ahead.
We are bullish on bonds – though investors should manage their expectations on rate cuts. This is a higher-for-longer era. Both the Federal Reserve (central bank in the US) and the Bank of England in the UK have warned that cuts will be slow to come and cautiously applied. Inflation is not conquered yet – and, as you explained earlier, a number of incoming US President Donald Trump’s policies are likely to be inflationary too.
With that in mind, we’ve selected Invesco Tactical Bond. The fund is co-managed by Stuart Edwards and Julien Eberhardt, who took over running it in August 2020 and August 2021, respectively. Both managers have been part of the fixed income team, Invesco, for well over a decade – and have contributed investment ideas for a number of years.
The fund can invest in all types of bonds, with few constraints placed on them. This includes high-yield bonds and derivatives, both of which add risk if used. The performance of the fund hinges on the managers’ ability to interpret the bigger economic picture – and they can alter the fund’s investments based on what they see. They aim to shelter the fund when they see tough times ahead, and seek strong returns as more opportunities become available.
We think this is a good fund for exposure to the wider bond market. It takes away the hassle of deciding which types of bonds to invest in and when – because the managers are given the discretion to make these decisions for you. Over the long-term, the aim is to deliver a total return, through the combination of capital growth and income, rather than focusing purely on generating a high yield.
[18:10] Sarah Coles: Thanks, Emma – what’s fund number two?
[18:12] Emma Wall: We think Trump’s impact on the US stock market could be positive for smaller companies – partly because of the potential for tariffs, which you discussed earlier. Trump has also proposed cuts to corporate taxes, which is positive for companies’ earnings – and, therefore, could be beneficial to stock market prices. Personal taxes – including income tax – are also expected to be lower under a Trump administration, which could boost consumption and raise economic activity – again, good for domestically-focused smaller companies.
One way to add this theme in your portfolio is through the Artemis US Smaller Companies Fund. The fund aims to deliver long-term growth by investing in smaller companies based in the US.
Smaller businesses are often among the most innovative – and offer lots of growth potential – but they are higher-risk than their larger counterparts. The fund usually consists of 40-60 companies. Holding a smaller number of investments can also increase risk, as each has a larger impact on performance.
[19:10] Susannah Streeter: And what’s the third fund you’re highlighting today?
[19:14] Emma Wall: While inflation and interest rates have proved headwinds for infrastructure, the macro-environment is slowly changing. Falling inflation and interest rate cuts, historically, have been good for infrastructure. Add to that the significant investment promised in the UK Budget in October, and the outlook is brighter than it has been for some time.
Both infrastructure and renewable energy offer investors potential for income and growth – and can add good diversification to a portfolio that already owns stocks and bonds. Baillie Gifford Sustainable Income Fund invests across three broad investment areas: shares, real assets (such as infrastructure and property), and bonds. We think this could help it take advantage of several themes emerging for the year ahead.
[19:57] Sarah Coles: Thanks, Emma.
[20:00] Emma Wall: Thanks for having me – and Happy New Year!
[20:01] Susannah Streeter: Thanks, Emma – you are officially the second person to say that now!
I should add that, before investing in a fund, you should make sure the fund’s objectives align with your own. You should also understand the fund’s specific risks and it forms part of a diversified portfolio.
[20:16] Sarah Coles: Investing in these funds won’t be right for everyone – if you’re not sure what’s right for your circumstances, you should ask for personal advice.
[20:22] Susannah Streeter: You’re listening to Switch Your Money On from Hargreaves Lansdown – and, before we go, there is time for a quick fact of the week. And, as we are in the forecasting business this time, it comes from Nostradamus.
So, apparently, he made some predictions for 2025 – so which of these is true?
Did he predict war and plague in England, the rise of an aquatic empire, or a mysterious fireball from space?
[20:50] Sarah Coles: None of those sound massively cheery, so I’m gonna go for the rise of some sort of mer-people – which might not be so bad.
[20:57] Susannah Streeter: I know what you mean – none of them sound much fun! But, actually, he predicted them all – so Happy New Year, everyone!
[21:03] Sarah Coles: What a way to end the podcast!
[21:06] Susannah Streeter: That’s all from us for this time – but, before we go, we do need to remind you that this was recorded on 13th and 16th December 2024 and all information was correct at the time of recording.
[21:16] Sarah Coles: Nothing in this podcast is personal advice – you should seek advice if you’re not sure what’s right for you. Investments and any income they produce can rise and fall in value, so you could get back less than you invest. Tax rules can change and benefits depend on individual circumstances.
And this hasn’t been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication.
[21:33] Susannah Streeter: Non-independent research is not subject to FCA rules prohibiting dealing ahead of research. However, HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing.
[21:47] Sarah Coles: You can see our full non-independent research disclosure on our website for more information. So, all that’s left is for us to thank our guests: Helen, Matt, Emma, and our Producer, Elizabeth Hotson.
[21:55] Susannah Streeter: Thank you very much for listening. We’ll be back again soon – goodbye!