In the US, the Federal Reserve kept the fed funds rate steady at the 4.25%-4.5% range during its January 2025 meeting, in line with expectations. Policymakers noted that recent indicators suggest that economic activity has continued to expand at a solid pace. The unemployment rate has stabilized at 4.1%, and labour market conditions remain solid. The U.S. economy expanded at a 2.3% annualized rate in Q4, bringing the annual growth rate to 2.8% in 2024. Growth was held back by a slower stockpiling in inventories, but boosted by solid consumer spending, both of which may partially reflect a pull forward in demand ahead of potential tariffs.

The US Manufacturing PMI edged up in January and signalled a slight improvement in manufacturing conditions after six months of decline. Factory production rose marginally for the first time in 6 months, with new orders also returning to modest growth. The Services PMI fell in January missing market expectations to mark the softest pace of expansion in US manufacturing activity since April of last year.

In the Eurozone, the economy unexpectedly stagnated in Q4, marking its weakest performance of the year after 0.4% growth in Q3. Unemployment rose slightly to 6.3% in December. The ECB cut interest rates by 25 bps in January as expected, reflecting easing inflation pressures. This move reflects the ECB’s updated inflation outlook, with price pressures easing in line with projections. The Services PMI declined slightly, missing expectations, though activity remained in expansion. Meanwhile, the Manufacturing PMI surpassed forecasts, with optimism reaching a seven-month high.

In the UK, the Bank of England kept interest rates at 4.75% in December, citing inflation risks from rising wages and price pressures. The UK economy stalled in Q3 2024, with growth revised down from earlier estimates with unemployment rising to 4.4% between September and November. The Services PMI edged higher in January but showed only slight business activity growth, while new orders declined for the first time in 15 months. Employment continued to fall due to rising staff costs, and inflationary pressures persisted, driven by wages and energy costs. Business sentiment remained pessimistic.

The UK Manufacturing PMI rose slightly in January from December’s 11-month low but continued to indicate worsening conditions. Output contracted for the third consecutive month, and new orders declined, reflecting weak domestic and overseas demand. Employment in Manufacturing fell in January, with job losses accelerating. Inflationary pressures intensified, with input costs and output charges rising at the fastest pace in two years.

Global equity markets remained strong in January. The MSCI World Index gained 3.93%, the S&P 500 rose by 2.7% and the Nasdaq gained 1.64%. In the UK, the FTSE 100 reached a new all-time high rising 6.13%, the best month in more than two years. Smaller companies were mixed with the FTSE 250 rising 1.59%, the Small Cap Index rising 0.07% and the Fledgling Index up 1.11%. The AIM All-Share Index struggled however and was down by 0.21%.

Our portfolio performed well during the month, up by 2.59% with the net asset value (NAV) increasing by 1.77% after accounting for all expenses. Notable contributors to performance included 4Imprint, Raspberry Pi, S&U Plc and Alpha Group, each gaining over 10% during the month. We reduced our holdings in Cerillion Plc and at month-end cash holdings comprised 3.2% of the portfolio.