Economic Analysis

23 January

26 - 30 January

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Historic FX & Interest Rates for 2025

Manufacturing PMI rose to 52.8 in November, a four-month high. The services PMI improved to 58.5 in November, its  highest level since May 2022. Core retail sales rose by 0.2% in the 3 months to October. Housing commencements are at 23.7k YTD in November, down 76.6%. House price annual inflation edged marginally lower to +7.3% in October. 

The December meeting of the ECB’s Governing Council saw the central bank leave interest rates on hold. This was the fourth successive meeting that the central bank left its official rates unaltered. The deposit and refi rates were maintained at 2.00% and 2.15%, respectively. The ‘unchanged rates’ outcome was very much in line with market expectations.

The December meeting of the Bank of England’s Monetary Policy Committee (MPC) saw the central bank lower the Bank Rate to 3.75%. The decision was very much in line with market expectations. Once again, there was no unanimity within the MPC on its policy decision, and if anything, the committee appears to be even more split then it was before. 

The Irish residential property market remains defined by tight supply as 2025 draws to a close. However, over the course of the year, there have been some encouraging signs in the supply dynamics, albeit the outlook remains challenging. 

The Federal Reserve Open Market Committee (FOMC) meeting for December saw the central bank cut interest rates by 25bps, with the target range for the Fed funds rate lowered to 3.50-3.75%. This was the third rate cut from the central bank in 2025, totalling 75bps. The decision to cut rates by 25bps was in line with market expectations. However, the voting breakdown showed some differing views within the FOMC. Three members dissented, the highest in six years.

Global economy has proven to be robust in 2025 despite ongoing geopolitical uncertainty.US growth increasingly imbalanced toward AI investment, with the consumer and labour market weakening. Fed and Bank of England set for further cuts as the ECB sits on the sidelines. Bank of Japan pivoting towards a hawkish stance. Dollar set for weakest year since early 2000s but currency has regained some lost ground during Q4 2025 and further modest upside for euro, while sterling could remain on the defensive amid a challenging macro environment.

This Budget is set against an uncertain economic backdrop so far this year. GDP growth was robust in the early part of the year but has since moderated. The Chancellor had committed to not raising taxes materially further following last year’s hikes to national insurance (NI) on employer contributions, which among other measures raised £40bn. While the tax rises are largely to fill the hole in the fiscal rules, there are also net spending increases in the budget.