A fall in interest rates and record highs for the FTSE 100 meant last week was a positive one for UK investors, despite wider gloom around the economy.

UK GDP figures for December are due to be released later this week and expected to show weak growth at best, as the economy has broadly moved sideways over recent months. On Thursday, the Bank of England (BoE) said it expected the UK economy to grow just 0.75% in 2025, compared to its previous estimate of 1.5%.

Yet, despite this backdrop, inflation is still above the BoE’s 2% target. As a result, the spectre of ‘stagflation’ (the combination of slow or no growth and rising prices) returns once again.

In a bid to mitigate this threat, the BoE’s Monetary Policy Committee met last week and cut interest rates by 0.25%.

There were signs of life in the UK economy, though. Halifax has reported that average UK house prices reached a new record high in January of nearly £300,000, after a dip in December. These figures might have been affected by a rush in buyers looking to beat an increase in stamp duty, due in April.

Last week saw the FTSE 100 continue its impressive performance since the turn of the year, reaching a record high on Thursday. Even a slight drop on Friday wasn’t enough to prevent a positive return over the week.

Peter McLoughlin, head of DFM research, said: “Say it quietly, but there is a recovery taking place in the UK. The FTSE 100 closed at an all-time high on Thursday. Equity investors think so.”

While the BoE cut rates, the Federal Reserve chose to keep US interest rates level for the time being.

Investors started the week contemplating what President Donald Trump’s tariffs on Mexico and Canada would mean. However, these tariffs were paused for a month after some behind the scenes negotiations. Since then, Trump has announced 25% tariffs on all imported steel and aluminium and threatened ‘reciprocal tariffs’ on any countries placing tariffs on the US.

Despite this uncertainty, the US economy seems to be on decent footing for now. Job numbers released on Friday, showed that the unemployment rate fell to 4.0%, the lowest level in eight months, according to the Labour Department.

Fourth-quarter 2024 earnings season has started brightly, with many US companies reporting relatively healthy performance. Companies representing over half of the S&P 500 market capitalisation have reported fourth quarter results and more than 60% of them have beaten sales estimates, with roughly 75% beating earnings forecasts.

With the threat of American sanctions hanging over its head, the EU is finding itself in a tight spot. Around 3% of euro area GDP comes from exports to the US. A flat 10% tariff, similar to what the Canadians and Mexicans face, could reduce EU GDP by up to 0.5%. Given the already weak economic backdrop, such a move could well put the trading bloc into a recession.

Despite this the MSCI Europe finished the week up 0.68%. This was partly due to the French prime minister François Bayrou being able to force through his 2025 budget despite a minority government and surviving a vote of no confidence.

Any business is taxed on its profits so the more you make, the more you may pay.

The amount of tax you pay will depend on decisions you make at the very start on how your business is structured, and how you pay yourself and others. These decisions aren’t set in stone – but it’s important to get off on the right foot.

Before you even start trading, you have a key decision to make about what trading structure you’ll be – sole trader, a partnership, a limited liability partner or limited company. Each structure has tax advantages and disadvantages, and different ways you can take money out of the business and pay people.

Although it’s primarily the role of your accountant to explain the different trading structures, it’s good to involve your financial adviser in these discussions right from the start.

If you set up a limited company, it’s important to think about your remuneration structure – how you pay yourself, and any staff. This is the salary versus dividend question. If you have a very profitable year you could choose to pay more dividends, as well as or instead of bigger bonuses. But with recent changes to the rate of corporation tax, the increase in dividend tax and the reduction of the dividend allowance you might decide on a fixed salary structure.

As a limited company, you have several options if you want to take money out of your business tax efficiently.

The starting point is making sure you’ve chosen the most tax-efficient way to pay yourself and others, and also maximising pension contributions.

Pension contributions are an important consideration for tax deduction. For sole traders and partners, personal pension contributions are eligible for tax relief at their highest rate of income tax. Employer contributions are highly tax efficient since they are generally an allowance expense for corporation tax and not a benefit in kind for the employee.