Market Update

April 2024

The global economic backdrop has proved challenging for investments over the last couple of years, as well as the outlook for the coming months and years.

Global inflation continues to be the key driver of both interest rate policy and, ultimately, investment markets and valuations.  Inflation has fallen substantially across the globe, and it now appears that the interest rate hiking cycle is over in much of the developed world.

The Consumer Prices Index (a broad measure of UK inflation) was 3.4% over the year to February 2024, significantly lower than the 11% peak reached in 2022.  The UK Government met its pledge to halve inflation in 2023, although this was perhaps more attributable to wider market forces than to Government or Bank of England interventions.  It looks likely that interest rates in the UK, the US, and the Eurozone have now peaked, with financial markets expecting multiple rate cuts throughout this year and forecasting the first cuts within the next few months.

The Bank of England and other central banks now face a challenge over the timing and extent of the widely expected cuts to interest rates.  This has been evident in the seemingly conflicting tone of comments from key central banks in recent months.  Although inflation has fallen substantially, it remains above central banks’ targets in most regions of the world.  This is providing a dilemma for the Bank of England’s Monetary Policy Committee (MPC), which is replicated around the world.  How quickly and aggressively should they act in response to tentative signs of the economy slowing?

In the coming months we expect to see investment markets recover further as inflation stabilises and interest rates begin to come down.  This should mark the transition into the recovery phase and a new economic cycle, and we expect this backdrop to be supportive of both equities and bonds.

It is common for a significant portion of the total return for the new market cycle to be achieved in its relatively early stages, hence the importance of remaining invested. We firmly believe the current economic woes are now priced into markets, although investment markets are likely to remain relatively volatile this year.  Whilst this period of adjustment over the last couple of years has been frustrating for investors, we expect patience to be further rewarded as economic prospects improve.