Five reasons to be jolly this Xmas

After months of gloomy headlines and speculation about the UK’s 2025 Budget, the final outcome turned out to be far less dramatic than many feared. In fact, it brought a welcome sense of calm to financial markets.

Here are five reasons why UK investors can feel a bit more jolly this Christmas.

The Budget didn’t rock the boat

After weeks of warnings and guesswork, the Budget arrived… and nothing broke.

That’s good news.

The government didn’t tackle some of the big long-term challenges facing the UK economy, but equally, it avoided any shock measures that might have unsettled markets or pushed inflation back up.

For investors, this sense of stability is valuable. Markets prefer a quiet backdrop to a noisy one, especially going into year-end.

Bond markets are calm and that supports UK equities

You may not follow gilt yields (UK government bond rates), but they matter.

Why? Because when they move sharply, they can cause turbulence across the entire stock market.

Since the Budget, gilt yields have actually fallen. That’s a strong sign that investors are comfortable with the UK’s financial position.

A calmer bond market makes it easier for stock markets to perform well, and it can help rekindle interest from overseas investors who have been sitting on the sidelines for some time. If this trend continues, it could be a turning point for the UK market.

Lower inflation ahead and possible rate cuts in 2025

The Budget wasn’t designed to heat up the economy, which means it shouldn’t add to inflation.

In fact, one measure – the removal of certain energy bill levies – should help bring inflation down in the short term.

Markets currently expect the Bank of England (BoE) to cut interest rates gradually over the next year or so. Nothing in the Budget changes that direction of travel. Lower inflation and gently falling interest rates would both be positive for consumers and businesses.

It’s not a Christmas miracle, but it’s progress.

A positive market reaction

Financial markets tend to vote with their feet, and their immediate reaction to the Budget was, surprisingly, upbeat:

Major UK stock indices rose
The pound strengthened slightly
UK government bond yields fell

This tells us one thing: investors were relieved.

Even on the high street, signs of improved sentiment are emerging. One major pub operator reported that Christmas bookings jumped the weekend after the Budget. As they put it, “The consumer is relieved and now just want to have a nice Christmas.”

We’ll happily toast to that.

Fewer surprises for UK companies

From the perspective of The Henderson Smaller Companies Investment Trust, the Budget didn’t deliver many windfalls. But it also avoided the big risks that could’ve hurt company earnings.

A few examples:

Some tax changes won’t kick in until 2029, giving savers and providers time to adjust.

Increased defence spending was confirmed – good news for companies supplying the sector.

Large UK employers, such as pub chains, will face higher wage costs. But this increase was widely expected.

In short, the Budget provided clarity without disruption, which companies and investors tend to appreciate.

In summary: A good dose of festive stability

A month on from the Budget, our view is simple: while it didn’t solve the UK’s biggest economic challenges, it did bring a calmer backdrop for investors.

With gilt markets steady, inflation easing, and interest rate cuts still on the horizon, there’s a sense that 2026 may offer more reasons to be hopeful – especially for UK smaller companies, where many valuations remain compelling.

For now, though, we’re embracing the mood of the nation: relieved, cautiously optimistic, and ready for a well-earned Christmas break.

Glossary

Glossary:

The Bank of England (BoE)

The Bank of England (BoE) is the central bank of the United Kingdom (U.K.). The BoE oversees the nation’s monetary policy and issues its currency. It also regulates banks, financial institutions, and payment systems. It is the U.K. equivalent of the Federal Reserve in the United States.

Bond

A debt security issued by a company or a government used as a way of raising money. The investor buying the bond is effectively lending money to the issuer of the bond. Bonds offer a return to investors in the form of fixed-periodic payments (a coupon), and the eventual return at maturity of the original amount invested—the par value. Because of their fixed-periodic interest payments, they are also often called fixed-income instruments.

Gilts

UK government bonds sold by the Bank of England used to finance public spending.

Inflation

The rate at which the prices of goods and services are rising in an economy. The consumer price index (CPI) and retail price index (RPI) are two common measures; the opposite of deflation.

Yield

The level of income on a security over a set period, typically expressed as a percentage rate. For equities, a common measure is the dividend yield, which divides recent dividend payments for each share by the share price. For a bond, this is calculated as the coupon payment divided by the current bond price. For investment trusts: Calculated by dividing the current financial year’s dividends per share (this will include prospective dividends) by the current price per share, then multiplying by 100 to arrive at a percentage figure.

These are the views of the author at the time of publication and may differ from the views of other individuals/teams at Janus Henderson Investors. References made to individual securities do not constitute a recommendation to buy, sell or hold any security, investment strategy or market sector, and should not be assumed to be profitable. Janus Henderson Investors, its affiliated advisor, or its employees, may have a position in the securities mentioned.

Before investing in an investment trust referred to in this article, you should satisfy yourself as to its suitability and the risks involved, you may wish to consult a financial adviser. Please refer to the AIFMD Disclosure document and Annual Report of the AIF before making any final investment decisions. Tax assumptions and reliefs depend upon an investor’s particular circumstances and may change if those circumstances or the law change.

Past performance does not predict future returns. The value of an investment and the income from it can fall as well as rise and you may not get back the amount originally invested.

The information in this article does not qualify as an investment recommendation.

There is no guarantee that past trends will continue, or forecasts will be realised.

Marketing Communication.

Glossary

Important information

Please read the following important information regarding funds related to this article.

Before investing in an investment trust referred to in this document, you should satisfy yourself as to its suitability and the risks involved, you may wish to consult a financial adviser. This is a marketing communication. Please refer to the AIFMD Disclosure document and Annual Report of the AIF before making any final investment decisions.

Specific risks

If a Company's portfolio is concentrated towards a particular country or geographical region, the investment carries greater risk than a portfolio that is diversified across more countries.
Most of the investments in this portfolio are in smaller companies shares. They may be more difficult to buy and sell, and their share prices may fluctuate more than those of larger companies.
This Company is suitable to be used as one component of several within a diversified investment portfolio. Investors should consider carefully the proportion of their portfolio invested in this Company.
Active management techniques that have worked well in normal market conditions could prove ineffective or negative for performance at other times.
The Company could lose money if a counterparty with which it trades becomes unwilling or unable to meet its obligations to the Company.
Shares can lose value rapidly, and typically involve higher risks than bonds or money market instruments. The value of your investment may fall as a result.
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The Company may use gearing (borrowing to invest) as part of its investment strategy. If the Company utilises its ability to gear, the profits and losses incurred by the Company can be greater than those of a Company that does not use gearing.
Using derivatives exposes the Company to risks different from - and potentially greater than - the risks associated with investing directly in securities. It may therefore result in additional loss, which could be significantly greater than the cost of the derivative.

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