2025 Review & 2026 Outlook

2025 marked a shift from campaigning to governing. Trump’s return put tariffs back in focus – initially unveiled theatrically, before being paused and diluted through negotiations. The US also passed a pro-growth but debt raising tax and deregulation package. In the UK and Europe, higher spending implied higher taxes, while growth slowed and inflation kept central banks cautious on rate cuts. Despite this noisy backdrop, both equities and fixed income produced solid results over the year.

With the prior year dominated by elections, 2025 was when politicians moved from campaigning to governing. In the US, Donald Trump’s return brought renewed focus on trade tariffs (taxes). In spring, Trump unveiled his “fair and reciprocal” list of who was getting whacked with what. He did so in a manner more reminiscent of an 80s gameshow host than President of the United States – via a large, printed board in his garden. This was followed by a bout of global hysteria. Especially upset were the poor penguins of the Heard and McDonald Islands, a remote Australian territory near Antarctica, unexpectedly included despite being uninhabited by humans. Thankfully, Mordor and Narnia were spared. Whilst the world wailed, markets shuddered and Trump paused his tariff bonanza. Negotiations followed with major partners, and the end result was watered down measures, with exemptions, delays and carve outs. This may have been the plan all along, but who really knows. 

Staying with the States, 2025 also saw the passing of Trump’s humbly named “One Big Beautiful Bill”. In essence, it keeps taxes low, encourages companies to invest and make things in the US, and reduces regulation to support growth and profits. However, it also means the government collects less tax, so borrowing rises. In the UK, Labour was keen to place the country’s tricky financial position on events outside its control, with Brexit, global shocks and the Conservatives all receiving honourable mentions. It was only with admirable restraint that references to the French Revolution, and the Battle of Hastings were avoided. After the Autumn Budget, whilst some measures were softened or delayed, the direction of travel was clear: higher spending would need funding, via higher taxes. Europe, often criticised for inertia, surprised many by loosening fiscal rules and increasing defence and infrastructure spending, supporting activity and confidence. Economic growth slowed but avoided recession, with the US cooling, Europe outperforming low expectations and the UK muddling through. Inflation remained stubborn, particularly in services and wages, keeping central banks cautious about cutting interest rates too quickly. Looking ahead, 2026 is likely to be shaped by an unsettled political backdrop, with US midterm elections, trade and fiscal policy in focus, and UK and European governments under pressure from tight budgets, ageing populations and rising defence commitments.

Bottom Line

2025 was a year where nothing quite went to plan, but nothing went badly wrong either. Inflation was tempered but refused to go away, interest rates came down only cautiously, and markets learned to live with it. As for the year ahead, the dominant US stock market remains richly priced and concentrated in a few companies. Diversification across geography, sector and currency is therefore likely to remain a friend to investors in 2026.