20/12/2025 by Tony Redondo
2025 was dominated by President Trump’s sweeping tariff regime, which transformed global trade dynamics. From January to April, average US tariff rates surged from 2.5% to 27%, the highest level in over a century. Trump imposed “reciprocal” tariffs on nearly all trading partners, with rates varying by country, alongside targeted measures on steel, aluminium, and copper. The US and China reached a framework agreement in May to temporarily reduce bilateral tariffs from 125% to 10% though tensions persisted throughout the year.
The global economy showed unexpected resilience to Trump tariffs. Overall consensus settled around GDP of 3.1–3.2% by year-end, with growth proving stronger than mid-year fears of sharper slowdowns from tariff shocks. Advanced economies grew modestly, around 1.5% while emerging markets provided momentum at 4%.
UK inflation peaked at 3.8% in the summer, the highest level since January 2024 and fell to 3.2% this month, the lowest level for eight months. Eurozone inflation started the year at 2.5%, fell to 1.9% in May, below the official 2% target, before settling at 2.1%. The annual inflation rate in the US came in at 2.7% this month, the lowest since July and well below the forecast 3.1%.
The G3 central banks gradually cut interest rates throughout the year. The BoE (Bank of England) from 4.75% to 3.75%. The ECB (European Central Bank) from 3% to 2% and the Fed from 4.5% to 3.75%.
Commodity markets experienced significant volatility. Gold surged roughly 65% during the year, marking its strongest annual gain since 1979, driven by geopolitical uncertainty and safe-haven demand. Conversely, Brent crude oil prices averaged $68 per barrel, down $13 from 2024 pressured by oversupply and weak Chinese demand.
Politically, Germany held snap elections in February, with Friedrich Merz’s CDU/CSU winning and forming a grand coalition with the SPD while the AfD surged to 20.8% of the vote reflecting broader populist trends across Europe.
Welcome to Two Thousand and Twenty Thrive – Cosmos Currency Exchange
Goldman Sachs Research forecast global GDP growth to increase by 2.8% in 2026, with subdued UK economic growth projected between 0.9% and 1.3%. Eurozone economic growth in 2026 is expected to remain modest, with projections ranging from 0.8% to 1.6% while US economic growth is expected to accelerate to 2.6%.
Deutsche Bank forecast two interest rate cuts in the UK in 2026, one in March and one in June, taking the Bank Rate to 3.25%. HSBC predicts the base rate will fall to 3% by the end of 2026. According to a Reuters poll of economists, a majority expect the ECB to hold interest rates at 2% at least until the end of 2026. The Federal Reserve is expected to proceed cautiously on interest rates. The median Fed projection indicates rates ending 2026 at 3.25% to 3.5%, implying only one rate cut next year though Jerome Powell’s term expires in May, creating uncertainty around future monetary policy direction.
Commodity markets are expected to diverge sharply. The World Bank projects commodity prices falling 7% in 2026 to six-year lows, driven by weak economic growth and expanding oil surplus but Goldman Sachs sees gold climbing 14% to $4,900 per ounce by next December supported by central bank buying and geopolitical uncertainty. Brent crude is forecast to decline to $56 per barrel as oversupply persists, while copper prices are expected to consolidate around elevated levels.
Politically, 2026 will see significant elections globally. May 2026 sees local council elections in the UK for 5,036 council seats across 136 English local authorities, including all 32 London borough councils, 32 metropolitan boroughs, 18 unitary authorities, six county councils, and 50 district councils as well as the Scottish parliamentary and Welsh Senedd elections. In the eurozone, France faces potential political turbulence. Without a budget agreement, there is a rising risk of government collapse and early legislative elections in 2026, as political manoeuvring ahead of the 2027 presidential race blocks political consensus. Although the right-wing RN leads polls at around 35%, it is unlikely to win a majority, meaning new elections would do little to resolve the deadlock. In the US, November sees the midterm elections that will determine all 435 House seats and 35 of 100 Senate seats potentially reshaping control of Congress during Trump’s second term. Thirty-nine gubernatorial races will also be contested making this one of the most consequential election cycles globally.
Currency Exchange Rates Update
On Thursday, the BoE’s hawkish cut saw the Pound gain against the Euro to finish the week up 0.2% and unchanged against the Dollar but this masks a turbulent last full week of trading of the year.
On Tuesday, the Pound hit its highest level against the US Dollar since mid-October. 24-hours later it declined to a one week low after a sharper than expected UK inflation fall.
Société Générale thinks the Pound to Euro exchange rate is heading towards 1.11as it loses its interest rate differential with the BoE expected to cut rates in 2026 while the ECB stays pat.
JP Morgan’s end-2026 forecast for the Pound to US Dollar exchange rate is 1.36, reflecting ongoing concerns about the UK’s persistent structural challenges including basic balance deficits, labour market issues, and productivity underperformance.
This week, the key economic data releases include:
Monday UK GDP
Tuesday Spain GDP
Canada GDP
US GDP, Industrial Production, Consumer Confidence & New Home Sales
What’s in the news?
The BoE delivered a pre-Christmas rate cut, reducing the Bank Base Rate to 3.75% amid anaemic economic growth and a deteriorating labour market and signs price rises will continue to slow into the new year. In a closer than expected 5-4 vote that was decided by Andrew Bailey, the MPC (Monetary Policy Committee) chose to cut by 0.25% to its lowest level since January 2023. It’s the first rate cut since August, after the MPC narrowly voted to hold the Bank’s Base Rate unchanged in September and November.
Governor Andrew Bailey was the only rate-setter to switch positions from last month’s vote, with four MPC members voting to keep the Bank Rate at 4% citing fears that recent disinflation will slow into the new year and consistently remain above target with a cut. However, the other five members argued a cut was necessary, warning the economy will stagnate amid the Chancellor’s second Budget which has seen the government raise taxes by nearly £70bn since coming to power in July 2024. The BoE warned they are expecting zero economic growth in the last quarter of this year and described the economy as “lacklustre.”
Bank of England interest rates decision – what it means for savers and 2026 – Somerset Live
UK
Borrowing by first-time buyers rose by nearly 30% in the year to September, with £82.8bn in home loans granted to 390,000 buyers according to data from estate agency Savills, fuelled by Britain’s biggest banks engaging in a fierce mortgage price war, with fixed rates on the verge of falling below 3.5% for the first time in over three years. Halifax, NatWest, Barclays, Nationwide, and Santander have all cut rates while experts predict rates could drop as low as 3% in the new year.
The ONS (Office for National Statistics) reported that public sector wage growth has risen at its fastest rate on record with workers employed by the state seeing their pay rise by 7.6% over the last year. As well as higher pay, the public sector has also experienced a significant increase in headcount over the past year. A total of 6.2 million people now work for the Government and other public sector bodies, up by 88,000 since Labour came to power in July 2024. In contrast, pay in the private sector rose by 3.9%, as it battles higher taxes and falling confidence. The ONS figures also revealed that unemployment rose to 5.1% in the three months to October, the highest level in almost five years.
Good news
The ONS reported that inflation in the UK cooled sharply to 3.2% in November. Economists had expected inflation at 3.5%. Despite the fall in inflation, the UK continues to have the highest inflation rate in the G7.
Not so good news
UK government borrowing exceeded expectations in November with the ONS reporting public sector borrowing topping £11.7bn in November. City economists were expecting government borrowing to come in at £10.2bn. Richard Carter, head of fixed interest research at Quilter Cheviot, said, “The good news for the UK economy is in short supply as the latest borrowing figures highlight. Since Labour came to power, the government has been on a borrowing binge as they look to not only plug the gaps in the public finances but also build extra headroom and look to not rein in public spending.”
The yield on 10-year UK gilts, the benchmark for government borrowing costs climbed by 13 basis points to 4.57% on Tuesday, the biggest jump since Chancellor Rachel Reeves was seen crying in the House of Commons on 2 July during Prime Minister’s Questions as PM Keir Starmer was questioned by Conservative leader Kemi Badenoch about Reeves’ work as chancellor and future in the role.
Leading audit, tax and business advisory firm, Blick Rothenberg partner Mark Cunningham, said, “The Office of National Statistics latest report shows unemployment has risen from 4.1% when Labour took office in July 2024 to 5.1% on Tuesday, an increase of around 24%. This is the sharpest rise in joblessness in several years and takes us back to levels last seen during the recovery from the pandemic. Businesses have been hit hard by Labour’s increase to employers National Insurance Contributions (NICs) and National Minimum Wage (NMW.) The wage increase has been counterproductive for young workers; almost 40% of 18–24-year-olds are now currently out of work. Overall, Labour’s policies have made it more expensive for businesses to employ people, this along with the growing use of AI, has led to hesitancy in hiring. While interest rate cuts and clarity following the Budget may offer some relief, and Government training schemes are welcome, they will take time to deliver. The labour market will continue to be subdued for a prolonged period without more immediate action, such as reconsidering the NIC rise to give businesses the financial headroom they need to cope with rising wages.”
Offshoring specialist The Legends Agency report that British jobs are moving overseas in “droves” as rising costs, wages, and employment taxes push companies to outsource. The London-based firm, which has supported over 200 UK businesses in recruiting South African talent across more than 1,000 roles, has nearly tripled its workforce this year alone in response to soaring demand.
S&P Global researchers have said that Britons were more pessimistic about their financial health over the next twelve months than at any time since December 2023, with confidence levels dropping for the third consecutive month with extra taxes expected to dampen activity in the UK economy.
Donald Trump has suspended a landmark tech agreement with the UK. The “tech prosperity deal” covers artificial intelligence (AI), nuclear energy and quantum computing, and was announced as part of Mr Trump’s state visit to Britain in September. It came alongside £31bn in investments from some of the biggest companies in Silicon Valley. However, the White House has paused work on the agreement as it seeks improved terms on a wider UK-US trade deal agreed in May.
Planning permissions for new homes in the UK fell by 31% in the third quarter, reaching the lowest level in over 15 years. Only 208,000 homes received approval in the year to September, marking a setback to Sir Keir Starmer’s pledge to build 1.5m new homes by the time of the next election. Neil Jefferson, chief executive of the Home Builders Federation, commented, “The figures paint a very worrying picture for future housing supply levels.”
UK mergers and acquisitions (M&A) activity fell by 8% to £162.2bn in 2025, according to a Mergermarket report. The decline contrasts with increases in France and Italy, where deal volumes rose by 18% and 23%, respectively. Lucinda Guthrie, head of Mergermarket, noted that uncertainty surrounding Rachel Reeves’s Budget and Donald Trump’s tariffs led to companies delaying takeover plans. Despite a healthy pipeline of 248 active deals, investor confidence suffered, with over £10bn withdrawn from global stock markets in six months. Guthrie stated: “Uncertainty is just the worst thing for mergers and acquisitions.”
The CBI’s retail sales balance fell to a six-month low in December 2025, well below market expectations. Retail sales volumes declined at the fastest pace in six months, extending a prolonged downturn that has persisted since mid-2023, with conditions expected to worsen further in January with the weakest outlook since March 2021.
USA
Core US inflation undershoots at 2.6%. Jonathan Moyes, Head of Investment Research, Wealth Cub said, “The market was expecting core inflation to come in at 3% for November, in an early gift to markets, core inflation came in at 2.6%. This provides markets with much needed clarity after the government shutdown. The initial market reaction has been positive with both equities and bond markets rallying strongly. Clearly the Federal Reserve has been reticent of cutting too far too soon. There are a number of crosscurrents in play, there were question marks over the extent to which trade tariffs will feed through into the inflation numbers, and next year, whether the big, beautiful bill will cause a big, beautiful return of inflation next year. What’s clear from todays’ reading is US inflation is softer than many thought, and this paves the way for looser monetary policy in 2026. The Santa rally might be coming to town.”
Existing home sales in the United States rose by 0.5% from the previous month to an annualized rate of 4.13 million in November of 2025, a third straight increase to the highest level in nine months.
US companies stuck to their “low-hiring, low-firing” stance in November, sending the unemployment rate to its highest level since 2021 but the 64,000 jobs added by the private sector was better than expected.
The US Senate passed a $900 billion defence bill, the biggest military spending program in history. The sum set out in the National Defence Authorization Act was higher even than US President Donald Trump requested.
The US approved $11 billion in arms sales to Taiwan, rankling Beijing even as the White House softens its approach to China in other arenas. The weapons include missiles, drones, and artillery systems, marking one of Washington’s most significant efforts in recent years to support Taiwan’s deterrence of China. Beijing said Washington was “turning Taiwan into a powder keg.”
Manhattan’s air pollution has fallen since the introduction of New York City’s congestion charge with municipal data showing that traffic had fallen inside the Congestion Relief Zone, and crashes, delays, and noise complaints are down since the program was introduced in January. The new study looked at airborne particulate matter in and outside the CRZ and found it had fallen 22% inside the zone and by smaller amounts across the city. Significant air-quality improvements have followed congestion programs in Paris and London.
US President Donald Trump filed a $10 billion lawsuit against the BBC. The UK state broadcaster ran a documentary last year which edited his 6 January 2021 speech at the US Capitol, giving the impression that Trump called for violence. The BBC acknowledged the error but rejected the defamation claim. The furore could hurt the BBC as the corporation’s UK income has declined 30% since 2010.
The EU
As expected, the ECB held its base rate steady last week but raised its growth outlook for the eurozone, predicting growth of up to 1.4% in 2025 and 1.2% in 2026. Officials have said rates are in a “good place,” with the growth outlook upgraded and inflation seen returning to the 2% target in 2028.
Germany’s GfK Consumer Climate Indicator dropped sharply, missed market forecasts to hit its lowest level since April 2024. The decline reflected renewed household caution, with buying willingness slipping after two months of increases. Also, the propensity to save jumped to its highest since June 2008 as concerns over a possible inflation resurgence and political uncertainty around pension reforms weighed on sentiment. Income expectations fell for a third month, underscoring ongoing pressure on household finances. By contrast, economic expectations turned positive, hinting at cautious optimism about the broader outlook.
France will be battling the three D’s (Debt, Deficits, and Deadlock politically) in 2026. Growth in France is estimated to be 0.8% for 2025 and while inflation is well below that of the EU overall at 0.9%, those three Ds are weighing heavily on France with one ratings agency already having downgraded France to AA-. The IMF forecast that French Debt to GDP ratio will rise from 116% in 2025 to 130% in 2030.
Others
Concerns over China’s prospects continue to rise with consumption, industrial production, and investment figures all falling short of analysts’ expectations, while one of the country’s biggest property developers seeking to win investor backing to restructure its bond payments in order to avoid default. The world’s second-biggest economy faces challenges ranging from the threat of chronic deflation, a flailing real estate sector, and languid growth overall, with Communist Party officials acknowledging at a major economic policy gathering last week that they would seek to increase investment spending next year. “Beijing wants to stabilize the economy… by providing support, not stimulus,” according to analysts at the research firm Trivium.
The BoJ (Bank of Japan) raised its benchmark rates to their highest level in 30 years.
The New Zealand economy grew by a better than expected 1.1% versus the 0.9% expected by analysts in the September quarter. However, the June-quarter GDP loss was revised up from 0.9% to 1.0%highlighting a volatile NZ growth profile.
South African authorities moved to amend rules on black ownership requirements, potentially paving the way for Elon Musk’s Starlink and other satellite-internet companies to operate in Africa’s biggest economy. Telecoms Minister Solly Malatsi last week told the industry regulator to allow equity-equivalent investment programs to count toward empowerment rather than insisting on 30% local Black-ownership, a policy introduced nearly 30 years ago to reduce apartheid-era inequality.
South Africa also announced plans to gradually cut the country’s reliance on physical cash, in a bid to reduce crime and increase taxation. Around two-thirds of payments in Africa’s biggest economy are made using bills and coins, transactions that have huge downstream costs. Managing, transporting, and securing physical money costs South Africa around $5 billion a year, or slightly more than 1% of its GDP with crime accounting for around 13% of that cost.
The IEA (International Energy Agency) reported that a record high 8.85 billion metric tons of coal will be consumed globally this year. Several factors, including the war in Ukraine, the Trump administration’s climate policy, and natural gas prices have all contributed to the uptick but the IEA expect coal use to peak by 2030. The biggest variable is China: if the country sees “faster-than-expected growth in electricity consumption, slower integration of renewables, or strong investment in coal gasification, it could push global coal demand above the forecasts,” the report said.
Stranger than fiction
Dense toxic smog in Delhi, India’s capital led to hundreds of flight cancellations and triggered travel advisories with the city’s air quality index breaching the “severe” threshold over several days and 30 times over the limit recommended by WHO (World Health Organisation). The government suspended construction, ordered 50% of staff to work from home, and imposed hybrid school lessons, while the UK and Singapore warned its citizens of travel and health risks. The smog worsens every winter as stagnant winds trap pollutants.
A new archaeological find revealed that humans intentionally made fire 350,000 years earlier than thought. People are known to have exploited naturally occurring fire, perhaps from lightning strikes for a million years or more, but evidence of them deliberately making it only goes back to around 50,000 years ago, in the last ice age. The new discovery, in Suffolk, is 400,000 years old, when brain sizes were approaching modern levels, and shows clay that was repeatedly heated above 700°C (1292°F) and iron pyrite fragments that can be struck against flint to create sparks. Fire mastery was crucial to human development, and the discovery suggests ancient humans’ behaviour and social relationships were more complex than believed.
Quote
Charles Dickens, A Christmas Carol, “I will honour Christmas in my heart, and try to keep it all the year. I will live in the Past, the Present, and the Future. The Spirits of all Three shall strive within me. I will not shut out the lessons that they teach.”
