So far, 2025’s been a bit of a weak starter for the FTSE 250. Despite its older sibling, the FTSE 100, delivering robust growth, the same can’t be said for the UK’s actual growth index. Even after factoring in dividends, the index has shrunk by 3.1%.
This isn’t an earth-shattering loss. And it’s a notably better performance compared to the S&P 500 across the pond, down almost 10% in the last few weeks and 4% since 2025 kicked off. Nevertheless, someone who invested £20,000 at the start of the year into a low-cost index tracker is now sitting on around only £19,380 before fees.
So what’s causing FTSE 250 stocks to stumble? And could things start moving in the right direction throughout the rest of 2025?
Ties to the economy
While the FTSE 250 is home to some of the largest businesses in Britain, it still contains a wide range of small- and medium-sized enterprises. And such companies are far more sensitive to local economic conditions versus large international titans found in the FTSE 100.
That’s terrific news for growth investors when an economy’s booming but not so much when economic progress is far slower than anticipated. Despite a strong start under a new budget, the Labour government’s attempts to re-spark the British economy haven’t exactly worked out as planned, with GDP expansion sitting at just 0.1% in the last quarter of 2024. And at the same time, CPI inflation has actually been rising, reaching 3% in January.
That’s particularly troublesome since it could be an early indicator of stagflation. However, as concerning as this sounds, the UK economy’s still far from reaching this troublesome scenario. And even in weaker economic environments, there are plenty of British businesses finding success.
Biggest winner in 2025 so far
As one of the largest businesses in the FTSE 250, Babcock International (LSE:BAB) is enjoying the benefits of having larger coffers compared to other constituents. For reference, the stock’s up over 40%. And a £20,000 investment at the start of 2025 would now be worth around £28,100 before dividends.
The aerospace and defence company is also reaping the benefits of higher defence spending worldwide, especially in countries across Europe. For example, management recently secured a new €800m (£675m) 17-year contract with the Direction Générale de l’Armement for the provision of military training for France’s Air and Space Force as well as its Navy.
But in particular, Babcock’s nuclear submarine and infrastructure solutions are proving to be particularly popular right now. The segment helped deliver double-digit growth in its 2024 half-year report. Skipping ahead to its third-quarter trading update, this momentum has continued, resulting in revenue and operating profits that come in ahead of expectations.
Of course, it’s important to remember that, like with any defence-oriented enterprise, the market’s cyclical. Should geopolitical tensions in Eastern Europe and the Middle East start to be peacefully settled, Babcock’s recent growth’s likely to slow. Nevertheless, the group’s recent performance suggests the stock is worth a closer look, in my opinion.
