Economic uncertainty is nothing new, but 2025 is already proving particularly unpredictable. Shifting government policies, unstable markets, and ongoing geopolitical tensions are leaving investors with more questions than answers.
The UK economy is losing momentum, and confidence in international markets is wavering. Add the lack of clarity around tax and worldwide trade, and it’s no surprise market volatility remains high.
Cash doesn’t always get the spotlight, but in unpredictable times, it can offer a real opportunity. In this article, we’ll explore why cash deserves a second look.
A challenging economic outlook
The British economy didn’t just slow down in January. It shrank. By February, the Bank of England had already cut its 2025 economic growth forecast from 1.5% to 0.75%. And that was before President Trump racked up the tension with a wave of on-again, off-again global tariffs.
The effects are already rippling through global trade and supply chains, and markets are feeling the impact. Volatility is back, and the US stock market is right at the centre. In under a month, around US$5 trillion (£3.9 trillion) has been wiped off the value of US stocks.
Even before Trump’s policy shifts, the US stock market was wobbling. Confidence in the so-called ‘Magnificent 7’ – Amazon, Apple, Tesla, and others – has been slipping. Tesla, for example, has taken a hit. Since Elon Musk took on his cost-cutting role in the US administration, the company’s value has plunged by 41%.
Big bets on AI have driven fierce competition and huge investment, but so far, the returns haven’t matched the hype. While technology is advancing quickly, it’s proving tough to turn innovation into profit, at least at the scale investors expected. Chip production is another challenge. With a heavy reliance on Chinese imports, some of the biggest names in tech are under pressure.
Setting the global tone
Even seasoned investors are stepping back.
Warren Buffett, the renowned American investor, has been trimming his stakes in companies like Apple for the last few years. All while building up a record-breaking $334 billion in cash reserves.
His go-to ‘Buffett Indicator’ – which compares market value to GDP – is warning the market is overvalued and ripe for change. Wall Street has seen a massive sell-off and fears of a downturn are growing. In a recent Financial Times survey, 52% of people believed the US was heading for a recession, and another 38% believe the country will experience economic decline. But the ripple effect goes way beyond the world’s largest economy. What happens in the US often sets the tone for global markets – shaping sentiment, pricing and influencing investor decisions.
Pressures at home
With the UK economy shrinking, the signals are hard to ignore – especially for savers weighing up their next move.
All the US activity can’t hide the fact the UK’s stock market has typically lagged behind its international peers for years. Over the last 10 years, the FTSE 100 averaged just 1.5% annual return compared to the S&P 500’s 11.5%.
Even with the FTSE 100’s record 8,908.82 high on the 3rd of March, cautious investors still see it as a risky bet. New UK government tax policies could also impact investment decisions and overall market confidence.
The blow to bonds
Government bonds (or gilts) can feel like a safe choice. But recent years have tested that belief. Stocks and bonds both lost value during 2022’s ‘stagflation’ shock.
And pressure is building in the UK’s bond market.
Sales are forecast to rise to nearly £310 billion next year. That’s above the revised £300 billion set out for 2024-25 in October’s Budget. It’s also the highest since 2020–21, following Covid’s massive economic impact. According to the Financial Times, the UK gilt market is ‘already on life support’.
Meanwhile, the UK’s debt-to-GDP ratio is drifting in the wrong direction. Growth is stuck at around 1%, inflation is above target, and interest rates remain at 4.5%.
Issuing more bonds is likely to increase the UK’s debt, and it’s unclear how much, or if, it’ll boost growth. That’s making some investors nervous, especially as gilts don’t feel quite so dependable.
It all boils down to one key takeaway. Cash provides a secure, competitive, and flexible way for clients looking to protect and grow their money.
Cash as part of a savings portfolio
In today’s tough market conditions, cash can play a vital role. It offers stability and flexibility. And with the Bank of England holding interest rates at 4.5%, it can offer real returns.
But when it comes to cash deposits, advisers sometimes stop at suggesting how much cash to hold. As a result, clients typically leave their cash with familiar High Street banks. But this inertia has several drawbacks:
- First, the interest rates on offer are usually pretty low.
- Second, people only tend to have one or two accounts. FSCS protection only covers £85,000 per individual account, so large savings could be at risk if their bank gets into trouble.
- Third, people who want to spread their money across accounts can struggle with changing rates, bank policies and tedious admin.
Flagstone’s cash deposit platform offers access to hundreds of savings accounts from over 60 banks – all in one place. With a single application, your clients can enjoy market-leading and exclusive interest rates offering better returns than the High Street banks. It also offers the flexibility to build a cash portfolio across a range of fixed-term, notice, and instant access accounts.
Next, we’ll show how a laddered approach to cash lets clients lock in high rates, keep access, and maximise returns.
Missed our first article? Catch up here to learn about the opportunity of Fixed Term savings in 2025.
