What Does 2024 Hold In The Financial World?
The UK Economy
Western economies did better than expected in 2023, but conditions are likely to remain tough. Some forecasts show growth in the UK economy of 0.7% in 2024 and 1.4% in 2025, with others forecasting 0.1% in 2024 and 0.2% in 2025.
The UK has a recent legacy of some unique circumstances, including Brexit; multiple prime ministers; a shortage of labour and underinvestment. It remains to be seen which predictions prove correct and avoiding recession will be difficult but not impossible.
Interest rates
The UK Bank rate was held at 5.25% in December. The rate remains at its highest level for fifteen years although is about average if we’re looking over the past fifty years. It feels high because we have experienced very low rates over the past ten years as a legacy of the 2008 Global Financial Crisis. Rates are set at current levels to reduce inflation towards the Bank of England’s target of 2%. The idea is that if interest rates are high, borrowing rates will increase and people will spend less, thus reducing demand and so inflation falls.
However, a larger proportion of consumers don’t have mortgages than do have them, so more than half of the population isn’t hugely affected directly by interest rate rises. Consequently, rates are unlikely to be hiked again in 2024 and more likely to reduce, albeit slowly.
Inflation
Inflation remained stubbornly high in 2023. Latest figures show that UK inflation stood at 3.9% year on year to November 2023.
It’s relevant to note that the public rate of inflation is not an individual’s rate of inflation. The published rate is based on a basket of goods thought to be relevant to the world we live in. But the items in the basket will never match personal consumer habits. Also, disposable income has actually improved, due to wage and state pension increases.
Inflation is expected to reduce further, but slowly and is likely to be above the Bank of England’s target rate for a few years yet.
UK Markets
At the time of writing, the FTSE 100 index stands at around 7700 – roughly the same level as January 2018. This means that the index has had almost no capital growth for almost 6 years! The pandemic, uncertain politics, slow growth, abnormally high inflation and Brexit are the main causes of the FTSE’s poor growth here. Future performance will be influenced by economic growth, inflation and politics.
However, people should be wary about being tempted to move into cash during periods of high inflation and disappointing market performance, despite fixed interest still being very appealing. It may be tempting to keep money on deposit rather than invest it. Nevertheless, long term, cash is not always king, as even though interest rates are high, inflation is nearly always higher.
In Summary
At Best Advice Wealth Management, we have a strong track record of helping our clients navigate through challenging market conditions and achieving higher than benchmark returns through regular dialogue, understanding individual needs and agreeing timely, bespoke financial plans. If you would like to learn more and start the New Year with a fresh approach, please get in touch.
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