Category: Blog
Investment market update: December 2025
After a year filled with uncertainty and rising trade tensions, markets were calmer in December 2025. Find out what may have affected the performance of your portfolio at the end of the year.
Market volatility eased in December 2025
Markets were downbeat at the start of the month. Most European markets were in the red on 1 December, including Germany’s DAX (-1.2%), France’s CAC 40 (-0.55%), and the UK’s FTSE 100 (-0.13%).
The Bank of England (BoE) carried out stress tests on 2 December, which all major banks involved passed. This led to bank stocks rising, including Lloyds (1%), Barclays (0.95%), and HSBC (0.7%).
American technology firm Oracle Corporation missed its revenue forecast and hiked expenditure plans by $15 billion (£11.3 billion). This led to the company’s shares dropping by 15.7% when trading started on 11 December – knocking almost £100 billion off the company’s market capitalisation.
The news dragged down other AI stocks as well, including Nvidia, which became the biggest faller on the Dow Jones Industrial Average index after it tumbled 2.7%.
Despite the concerns about AI, the Dow Jones Industrial Average hit a record high after rising 0.95% on 11 December following news that US interest rates had fallen.
On 17 December, the FTSE 100 was up 1.6% following a bigger-than-expected drop in inflation, leading gains in European markets.
With Christmas nearing, festive optimism swept through London. On 19 December, the FTSE 100 closed at an almost record high, with leading firms including Rolls-Royce (2.7%) and precious metal producers Endeavour Mining (3.1%) and Fresnillo (2.8%). However, housebuilders and retailers suffered falls.
UK
UK inflation slowed to 3.2% in the 12 months to November 2025, according to the Office for National Statistics. The news led the BoE’s Monetary Policy Committee to vote to cut the base interest rate from 4% to 3.75%, with further cuts anticipated in 2026.
The headline GDP figure was weak in the UK. The economy unexpectedly shrank by 0.1% in October, according to official data.
In addition, UK unemployment hit a four-year high of 5.1% in the three months to October. This could signal a weakening economy.
However, forecasts suggest the economy could pick up in 2026. The Organisation for Economic Co-operation and Development (OECD) expects the UK to be the third fastest-growing economy among G7 members in 2026, falling behind only the US and Canada.
This view is supported by a return to growth in the manufacturing sector.
According to S&P Global’s Purchasing Managers’ Index, manufacturing grew for the first time in a year. The reading came ahead of the Budget, when uncertainty was likely to have been playing on the minds of businesses, so the improvement is particularly encouraging.
Sadly, it’s a different picture for retail.
The Confederation of British Industry (CBI) reported that retail volumes fell at an accelerated pace in December despite the festive season, and firms don’t expect any relief in the opening months of 2026.
Europe
The European Central Bank (ECB) opted to hold its interest rates in December as it noted that it’s on track for inflation to settle around its 2% target.
The ECB also raised its growth forecast for the economic bloc, driven by rising domestic demand. The bank now expects GDP to rise by 1.4% in 2025 and 1.2% in 2026.
An industrial recovery is likely to play a crucial role in the higher GDP forecasts. According to Eurostat data, industrial output increased by 0.8% in October as businesses benefited from trade uncertainty fading and falling energy costs.
However, not every part of the region is as optimistic.
The German Ifo Institute’s business climate index fell in December, despite analysts predicting a rise. The gloomy outlook is linked to two years of economic contraction in manufacturing, confidence in the service sector falling, and unhappy retailers facing lower-than-expected sales in the lead-up to Christmas.
US
US inflation unexpectedly fell to 2.7% in the 12 months to November 2025. Experts had predicted inflation would be 3.1%.
While falling inflation is good news for struggling families, rising unemployment could suggest further difficulties ahead. The unemployment rate hit 4.6%, amid apprehension about the strength of the US economy.
However, job growth was higher than anticipated in November. A total of 64,000 jobs were added, against the predicted 40,000.
The economic news led to the Federal Reserve cutting the base interest rate by a quarter of a percentage point. The base rate is now at its lowest point since 2022.
President Donald Trump permitted technology giant Nvidia to ship H200 chips to China in exchange for a 25% surcharge for the US. The move could allow Nvidia to win back billions of dollars in lost revenue, which led to its shares rising by 2.3% on 9 December.
While good news for Nvidia, the move has been criticised for being an “economic and national security failure” by some Democratic senators.
Asia
The International Monetary Fund (IMF) raised its growth forecast for China. The organisation now expects the country’s economy to grow by 5% in 2025 and 4.5% in 2026, thanks to lower-than-expected tariffs on Chinese exports.
However, the IMF also urged China to fix “significant” imbalances in its economy, primarily by shifting from export-led growth to domestic consumption.
The positive news from the IMF was supported by official trade data.
China’s trade surplus hit $1 trillion (£0.74 trillion) for the first time in November 2025, as the economy appeared to shrug off concerns about the impact of trade with the US. Exports grew by 5.9% year-on-year in November following a 1.1% contraction in October.
Please note: This article is for general information only and does not constitute advice. The information is aimed at individuals only.
All information is correct at the time of writing and is subject to change in the future.
The value of your investments (and any income from them) can go down as well as up, and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.
The salary sacrifice pension cap essentials business owners need to know
You might already know that salary sacrifice can be a practical way for your employees to bolster their retirement funds, while reducing their tax liability.
However, in the 2025 Autumn Budget, the government announced changes to how salary sacrifice is treated for National Insurance (NI) purposes.
From April 2029, a new cap will be introduced, limiting the portion of pension contributions exempt from NI to £2,000 a year.
While 2029 might seem a long way off, this is the ideal time to think carefully about how you and your business might be affected so you can be prepared.
Continue reading to discover exactly how the salary sacrifice pension cap will work, and what it means for your business’s retirement planning.
Salary sacrifice is a way for your employees to exchange a portion of their income for benefits
Salary sacrifice involves an employer and employee agreeing to a reduction in gross pay in exchange for non-cash benefits.
These might include:
- Employer-provided healthcare
- Gym memberships
- Financial advice
- Company cars (especially electric vehicles).
Perhaps the most popular non-cash benefit is pension contributions. For many other non-cash benefits (known as “benefits in kind”), tax might still be due. However, pension contributions made via salary sacrifice are typically exempt from both Income Tax and NI.
Furthermore, when your employees sacrifice a portion of their salary, you might then decide to contribute the equivalent amount to their pension. Currently, this allows you to significantly boost their retirement fund.
Moreover, as an employer, you currently benefit from not paying Class 1 secondary National Insurance contributions (NICs) – 15% in 2025/26 – on the amount sacrificed by your employee. This results in a tax saving.
However, from April 2029, the government will limit the NI efficiency on these contributions. While your employees won’t pay Income Tax on your contributions, any amount sacrificed into a pension above £2,000 a year will attract NI.
For the portion exceeding the cap, employees will pay Class 1 NICs, while you will be liable for the 15% rate.
If you’re a business owner, you might want to review your pension strategy
As a business owner, these changes to the salary sacrifice regime can affect your company’s finances and your personal tax situation.
If you pay directly into your pension from your business, or do the same for your employees, nothing will change.
However, if you currently have salary sacrifice arrangements with your employees, or use salary sacrifice to fortify your own pension, the 2029 cap means that making pension contributions will become more expensive.
As an example, every £1,000 sacrificed over the £2,000 limit by you or your employees could see your business face a £150 NI charge.
Furthermore, if you currently share the employer NIC savings with employees to top up their pots, you may need to assess how the new NI charge might affect you.
Otherwise, if your business encourages higher pension savings, you might find your company costs rise significantly in 2029.
As such, it’s worth reviewing any existing salary sacrifice arrangements and employment contracts, and then modelling how contributions exceeding £2,000 might impact your business.
After building this model, you should confirm whether contributions are through salary sacrifice or as standard employer contributions. It might even be prudent to assess your remuneration approach for any key members of staff.
While April 2029 might seem like a long time in the future, taking steps to prepare your business now could help you soften any potential blows later down the line.
It’s useful to understand how the cap might affect your employees
While your own planning is important, it’s also a good idea to consider the impact the change could have on your employees, such as seeing their take-home pay drop as their NI bills rise.
For example, an employee earning £60,000 a year and contributing 6% of their salary into their pension through salary sacrifice would have annual contributions of £3,600. Since this would exceed the £2,000 cap by £1,600, they would pay NI on this amount.
Despite the cap, it may be worth informing your employees that salary sacrifice can still be a practical way to manage their tax liability.
Indeed, the higher-rate band for Income Tax starts at £50,271 as of 2025/26. If an employee earns £50,000 and receives a 5% pay rise to £52,500, they would normally be pushed into the 40% bracket.
They could, however, sacrifice that £2,500 into their pension to remain in the basic-rate band.
Even though they would now pay NI on the £500 of the contribution above the cap (assuming they make no other pension contributions), the Income Tax savings could still make this approach financially beneficial.
It’s is important to note that if salary sacrifice is a popular perk in your business, your company might seem less attractive to the talent you wish to hire from 2029 onwards.
A capped NI benefit might deter higher-level talent, turning them towards competitors who offer a higher base salary or more generous direct pension contributions.
To stay competitive, you may want to consider paying more into your employees’ pensions rather than offering a higher salary.
Get in touch
We could help you deal with some of the tax complexities of the new salary sacrifice rules well ahead of the deadline.
Please note: This blog is for general information only and does not constitute financial advice, which should be based on your individual circumstances. The information is aimed at retail clients only.
Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.
The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.
Workplace pensions are regulated by The Pensions Regulator.
The Financial Conduct Authority does not regulate tax planning.