With inflation still running above most central bank targets and some economies starting to show signs of a slowdown, investors are questioning what lies ahead for interest rates.
Some central banks are taking action, while others remain cautious.
Since the start of the year, the Bank of England (BoE) has cut the base interest rate twice, bringing rates down from 4.75% to 4.25%.
Although inflation’s eased from its post-pandemic highs, it’s still elevated at 3.6%, above the 2% target. This supports the case for keeping interest rates higher and it’s something the BoE will be watching closely.
But the BoE must also contend with a weakening economy and a slowing job market. Typically, the BoE considers cutting rates to stimulate growth, but with inflation still above target, it could go either way.
The European Central Bank (ECB) has reduced rates from 3.15% to 2.15% since the start of the year.
Inflation in Europe has been less of a concern. In June, it was 2%, in line with the ECB’s long-term target.
With inflation under control, the ECB’s been able to shift its focus more toward supporting the economy. Trade tensions with the US also pose a risk to growth, so the ECB’s cut interest rates in an effort to keep the economy resilient.
Across the pond, the US Federal Reserve (Fed) has held interest rates steady so far this year. A series of cuts toward the end of 2024 raised expectations it would continue into 2025, but that hasn’t been the case.
Inflation remains close to the 2% target, with June’s figure reported at 2.7%, and economic growth also faltered in the first three months of the year.
That said, Trump’s policies introduce uncertainty around both inflation and growth. Lower taxes, higher tariffs, and the deportation of workers are considered to be inflationary.
The Fed’s therefore taking a cautious approach, preferring to wait and assess the full impact of these policies before making any decisions. That said, markets are predicting that the Fed will cut rates at least twice by the end of the year.
Elsewhere, the Bank of Japan (BoJ) has been raising rates in 2025, as inflation has been rising for the first time in years.
The BoJ is now holding rates steady at 0.5%. Still, with inflation proving to be sticky, the BoJ could buck the global trend and continue raising rates further.
This article isn’t personal advice. All investments, and any income from them, can rise and fall in value, so you could get back less than you invest. Remember, past performance isn’t a guide to future returns.
Trump’s ‘One, Big Beautiful Bill’
After more than 24 hours of debate, Trump’s landmark bill – promising tax cuts and increased spending – narrowly passed in the Senate and Congress, and was signed into law by Trump.
The bill focuses on extending the tax cuts Trump introduced during his first term, which were set to expire at the end of the year. It also includes eliminating taxes on tips and overtime – key pledges from his campaign – as well as a significant increase in spending on border security.
This could be a positive development for markets – lower taxes could boost consumer spending and corporate profits.
However, the US is still grappling with inflation, and increased government spending combined with Trump’s tariff policies could push prices higher. If inflation remains elevated, it’s unlikely the Fed will cut interest rates soon.
Why is Trump’s bill controversial?
Democrats have argued that the bill is both fiscally and morally irresponsible.
To fund the tax cuts, Trump has reduced welfare spending, including significant cuts to Medicaid – a program that provides healthcare access to low-income citizens.
The bill also includes cuts to clean energy tax credits and SNAP, a program designed to help lower-income individuals access food through government-issued benefits.
Critics argue these cuts are unlikely to offset the cost of the bill, which is projected to add $3.3trn to the US national debt over the next decade.
How have global stock markets performed?
Despite all of this, global stock markets have seen positive results for the 12 months to the end of June. Over the past year, the broader global stock market has risen 7.16%*.
The US stock market, which makes up a large part of the global market, grew 7.23% during this period.
It was a volatile 12 months, with markets initially reacting positively to Donald Trump becoming president. However, in April he surprised investors by announcing significant tariffs on some of the US' closest trading partners. After causing market turbulence, he paused the additional levies and trade agreements remain ongoing.
Over the last 12 months the Chinese stock market was one of the best-performing regions, returning 23.71%.
Increased support from the Chinese government for its technology sector has given investors a confidence boost. Additional stimulus measures more broadly has also helped. That said, challenges remain, like a slowing property sector and subdued consumer spending.
The Indian stock market was one of the worst-performing stock markets over the last 12 months falling 5.65%. After recent years of strong performance, investors might be looking for new opportunities elsewhere.
At a sector level, the global financials sector performed best, returning 23.47%. Healthcare stocks lagged the wider market, returning -11.83%.
One-year stock market performance
How have our Wealth Shortlist funds performed?
Global funds on the Wealth Shortlist delivered mixed performance over the past year, with some faring better than others.
A year is a short time to assess the skills of a fund manager though. Managers with different strengths, styles and areas of focus will perform differently over time.
Investing in funds isn't right for everyone. Investors should only invest if the fund's objectives are aligned with their own, and there's a specific need for the type of investment being made. Investors should understand the specific risks of a fund before they invest, and make sure any new investment forms part of a long-term diversified portfolio.
For more details on each fund and its risks, please see the links to their factsheets and key investor information below.
Artemis Global Income was the best-performing fund in the global sector of the Wealth Shortlist over the past 12 months.
Managed by experienced investor Jacob de Tusch-Lec, the fund returned 28.70%* versus 7.64% for the MSCI AC World Index and 7.06% for the average fund in the IA Global Equity Income sector.
We like de Tusch-Lec’s contrarian approach to investing, but it can lead to the fund investing very differently to its peers.
Our analysis suggests de Tusch-Lec’s stock selection has been the main driver of returns over the past 12 months.
In particular, selections in Europe and Japan, as well as investments in financial service and industrial companies, have all benefited the fund’s performance.
The fund can invest in smaller companies as well as emerging markets, which can increase risk. The manager can also use derivatives, which, if used, increases risk. Charges are also taken from capital.
The abrdn Global Smaller Companies fund was the weakest-performing fund in the global sector of the Wealth Shortlist returning 3.40% over the past 12 months.
The fund and sector have had a difficult time over the past 12 months as funds focused on smaller companies have generally lagged those investing in larger companies. Given the market volatility, investors have generally stayed close to the large companies they know and love.
The fund invests in smaller companies and in higher-risk emerging markets and can use derivatives, which if used adds risk. The fund is also concentrated in just a small amount of companies, this means each holding can make a meaningful contribution, but it can increase risk.
June 2020 - June 2021 | June 2021 - June 2022 | June 2022 - June 2023 | June 2023 - June 2024 | June 2024 - June 2025 | |
|---|---|---|---|---|---|
abrdn Global Smaller Companies | 32.96% | -27.54% | 8.30% | 11.82% | 3.40% |
MSCI AC World Small Cap | 38.34% | -10.68% | 8.51% | 11.80% | 5.25% |
Artemis Global Income | 33.19% | 1.51% | 4.00% | 31.90% | 28.70% |
MSCI AC World | 25.10% | -3.73% | 11.89% | 20.61% | 7.64% |
IA Global Equity Income | 21.58% | 0.96% | 9.14% | 12.98% | 7.06% |