December monthly market update - Reflections on November 2025

Despite recent volatility in global markets, confidence returned as strong tech earnings and renewed hopes of Federal Reserve interest rate cuts helped share prices recover.

Why have markets been so volatile?

Markets experienced volatility in November after investors became worried about elevated tech company valuations and doubts over a December interest rate cut. Sentiment was also hit by weak economic data from China, which showed an unprecedented slump in investment.

Since US President Donald Trump's Liberation Day sell-off in April, global markets have been riding high, supported by gains in artificial intelligence (AI) and expectations of interest rate cuts. However, concerns have grown about the scale of investment flowing into AI and how long it may take for returns to materialise.

Fresh Chinese data unsettled markets further, indicating a sharper-than-expected slowdown at the start of the final quarter. According to the National Bureau of Statistics, fixed-asset investment fell by 1.7% in the first 10 months of the year, marking a record decline.

There were also worries about the economic impact of the longest federal government shutdown on record. Despite lingering unease about AI valuations, this had little effect on overall returns, with indexes finishing November broadly where they began.

Markets later rallied after strong results from tech giant Nvidia and renewed hopes of US Federal Reserve (Fed) rate cuts, following comments from New York Fed President John Williams suggesting interest rates could fall in the near term.

Volatility is a normal and expected part of long-term investing. While it can be unsettling to see investments fluctuate, history shows that markets tend to recover over time.

What impact are tariffs having on the US economy?

The global economy has shown unexpected resilience in the face of President Trump’s tariffs, but the full impact is yet to be felt. US importers and retailers have shouldered most of the burden so far, though consumers are expected to face higher prices in the coming months.

President Trump shocked markets in April by declaring sweeping reciprocal tariffs on virtually every country. So far, the economic fallout has been less severe than many economists feared. Even so, economic data this year shows inflation trending higher.

Tariffs push up inflation by making imported goods more expensive, which raises costs for consumers and businesses. This can lead to higher prices for everyday items, as well as goods made in the US that rely on imported components.

Stockpiling by retailers earlier in the year helped absorb some of the impact, but evidence now suggests tariffs are exerting upward pressure on prices, with effects starting to show in the inflation data.

Research from the National Bureau of Economic Research (NBER) shows that import taxes increased the inflation rate by 0.7 percentage points between March and August. Researchers said inflation would have been 2.2% without tariffs, much closer to the Fed’s target.

How fast is the uk economy growing?

The UK economy has gradually lost momentum in 2025, despite a strong start to the year. Growth expanded by 0.7% in the first quarter, largely driven by businesses accelerating investment to get ahead of President Trump’s tariffs.

GDP then slowed to 0.3% in the second quarter and just 0.1% in the third, underscoring the steady loss of pace. On an annual basis, GDP is estimated to have risen by 1.3% in the third quarter compared with the same period a year earlier. Economists believe this reflects the impact of ongoing economic and political uncertainty.

The labour market has also softened following April’s increase in employer National Insurance contributions, which analysts say has reduced hiring. Business leaders have additionally raised concerns over an inflation-busting rise in the minimum wage, fearing it will push up unemployment.

The government has faced criticism over its Autumn Budget, which did not alter the growth forecast for the next five years, according to the Office for Budget Responsibility (OBR). Critics argue that the Budget lacked pro-business, growth-orientated measures, leaving broader investment under pressure.

The OBR has lifted its growth forecast for 2025 to 1.5%, up from 1%. However, it expects growth to ease to 1.4% in 2026 and to average 1.5% annually over the following four years. Weaker productivity growth remains the main drag on the outlook.

Looking ahead

The outlook for markets remains positive, with US company earnings growing at their fastest pace in four years. Expected central bank rate cuts should support equities, while artificial intelligence is likely to remain a major driver of growth.

Wall Street banks expect US stocks to deliver another year of double-digit gains in 2026. The blue-chip S&P 500 is forecast to rise above 7,500 points by year-end, based on the average outlook from nine major investment banks surveyed by the Financial Times.

Global growth is forecast to ease from 4.2% in 2025 to 2.3% as the full effects of tariffs weigh on investment and consumption, according to the Organisation for Economic Cooperation and Development (OECD).

Leading economies are also expected to conclude their rate-cutting cycles in 2026, with OECD forecasts indicating limited room for further easing despite slowing growth.