The Bank of England is expected to cut interest rates twice in 2025, once in August and again in November. This would bring the base rate down to 3.75% by year-end.
Each week, we provide you with the latest news that may impact the market and, consequently, your investments. Stay informed with Compare Wealth Managers.
The Rise of Cash-Rich Investors
Image: Pexels/Pabda
With interest rates still elevated, many high-net-worth individuals are holding unprecedented levels of cash and near-cash assets. In fact, via ABC Money UK households now sit on £1.9 trillion in cash and savings, a historic high.
Investor Insights:
- Cash drag is real: Even with higher interest, inflation is quietly eroding real returns.
- Short-term fixed income (gilts, T-bills): These offer a compelling alternative with liquidity and minimal volatility.
- Don't time the market: Keeping too much in cash may mean missing equity rebounds or private market opportunities.
- Use wrappers: ISAs, bonds, and insurance-based structures can make holding income-generating assets more tax-efficient than cash.
Cash can be a defensive asset, but it’s also a wasted opportunity without a plan.
Interest Rates projected to fall in 2025
Image: Pexels/Joaquin Carfagna
The Bank of England is expected to cut interest rates twice in 2025, once in August and again in November, according to a new Reuters poll of 70 economists.
This would bring the base rate down to 3.75% by year-end, as the UK economy grows steadily (1.2% GDP forecast) and inflation cools to 3.6%, though still above the 2% target.
The BoE’s shift reflects an attempt to support households and businesses without stoking a second wave of inflation.
Investor Insights:
With borrowing costs falling, rate-sensitive assets like bonds, infrastructure, and growth equities may benefit, but inflation is still sticky.
Wealth managers are watching for:
- Opportunities in long-duration bonds, which may gain as yields fall
- Shifts in UK housing and mortgage markets
- Asset rebalancing to reduce cash drag and inflation exposure
Portfolio reviews now can help investors rebalance risk and return ahead of a lower-rate environment.
Inheritance Tax Receipts Reach New High
HMRC collected £8.2 billion in inheritance tax in the 2024/25 tax year, via Insight, marking a record increase, driven by frozen nil-rate bands and rising property and asset values. More estates are being affected as thresholds remain unchanged since the late 2000s
Many families don’t realise their estates now fall above the £325,000 nil-rate band, exposing them to the standard 40% IHT charge, even on assets like property or modest portfolios.
What wealth managers are watching:
- Lifetime gifting: Using the annual and seven-year giver rules to shrink your taxable estate while retaining control.
- Trust structures: Leveraging discretionary trusts or reversionary trusts to preserve flexibility and shield legacy assets.
- AIM-listed shares (BPR): Shares listed on the Alternative Investment Market (AIM) may qualify for 100% Business Property Relief after two years.
- IHT-efficient wrappers:
Investment bonds and BPR-eligible funds offer alternative routes to reduce exposure—and may also offer income growth.
Markets Summary (as of 01/08/25)
FTSE 100 Index: 9,075.03, down 57.78 points (-0.63%) (Via: ADVFN)
GBP/USD Exchange Rate: 1.1418, up 0.0002 (+0.02%) (Via: WSJ)
Brent Crude Oil: $71.05 per barrel, down $0.65 (-0.91%) (Via: Reuters)
This brief is intended for informational purposes only and does not constitute financial advice. Please consult a qualified adviser before making any investment decisions.
Looking for a second opinion on your wealth strategy? Compare Wealth Managers connects you with top-rated, FCA-regulated advisers for free. Click the orange “Start comparing” button to begin or read our 5* Trustpilot reviews.
