Stock markets ended 2025 on a bright note and this appears to be continuing despite a hectic start to the New Year from the US President. I rather like the notion that we should be reporting on the end of the first quarter of the 21st Century and not just the fourth quarter of 2025, but maybe that’s for another day. As Cranley points out in his piece on the UK economy, growth remains elusive and, so far, the Chancellor only has herself to blame. I suspect that the next six months might bring some relief on this front, the Base Rate is lower, inflation is better than feared, the budget is behind us and companies have had time to adjust. Whether any improvement is enough to make a material dent in the Chancellor’s dire arithmetic remains to be seen.

The US economy weathered the tariff chaos surprisingly well, and it remains resilient, but President Trump’s relentless attacks on the Federal Reserve are not good. Recent examples of the loss of central bank independence do not bode well for the US dollar. 2025 saw a sharp depreciation in the dollar as a loss of trust in US institutions and a perceived need to hedge against the President’s erratic policy making took hold. A loss of Fed independence would make this worse.

As I write, we are waiting for a (delayed) ruling from the US Supreme Court on around half of President Trump’s tariffs. If this goes against the US President, the whole wretched process will be in chaos again. One certainty is the mid-term elections due in early November, which includes all 435 seats in the House of Representatives. The President is losing popularity in the US with most Americans now blaming him and his policies for the high cost of living. Expect endless tinkering and economic interference as he attempts to force prices and costs lower and bolster his appeal. The prospect of losing control of Congress to the Democrats might lead the President to all sorts of extremes. As for his more recent international actions, I find it hard to believe that foreign escapades / diversions are what the ‘MAGA’ faithful signed up for.

I realise that I have almost reached the bottom of this page without mentioning AI, possibly because we did talk about it quite extensively in the autumn. I will just say that there has been an AI capex ‘arms race’ among major US corporations, which now appear to have committed to around $500bn of annual expenditure. I really cannot see that a decent return on this scale of investment is likely.

But I can understand the stock market’s more optimistic take at present. US growth is likely to be stronger this year with lower interest rates and tax handouts and, as above, the UK has scope for better growth and in Europe, Germany is spending again. I don’t think that the US is ‘exceptional’ anymore, but there does appear to be plenty of scope elsewhere.

The full Quarterly Review is available here.

January 2026

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