Market Review – December 2023


Mid-caps outperform: although UK equity indices ended November in positive territory, their overall performance was muted compared with many other leading equity markets. The FTSE 250 Index – representing medium-sized companies – performed better than the FTSE 100 Index, boosted by speculation that interest rates might have peaked; returns from blue-chip stocks were curbed by a stronger pound. The FTSE 250 Index rose by 6.7% during the month, while the FTSE 100 Index climbed by only 1.8%.

Autumn Statement: the Chancellor of the Exchequer’s Autumn Statement included cuts to National Insurance contributions, increases to the State Pension and the National Minimum Wage, as well as simplifications to the ISA system and potential changes to pensions. The Office for Budget Responsibility (OBR) predicted that Government spending on debt interest will reach its second-highest level since WW2; at the same time, the UK’s tax burden will rise to a post-WW2 high of 37.7%.

Rates unchanged: the Bank of England (BoE) held its key interest rate at 5.25% in November but emphasised that it remained ready to raise rates again if necessary. Later in the month, BoE Governor Andrew Bailey stated: “Let me be very clear: it is far too early to be thinking about rate cuts”. The rate of consumer price inflation fell from 6.7% year on year in September to 4.6% in October, dampened by the impact of lower fuel prices.

Lacklustre outlook: the OBR expects the UK economy to expand by 0.6% this year, 0.7% in 2024, and 1.4% in 2025. In comparison, the Organisation for Economic Cooperation & Development (OECD) predicts growth of 0.5% in 2023, 0.7% in 2024, and 1.2% in 2025. Activity is anticipated to be hampered by lingering inflationary pressures, high interest rates, and fiscal pressures on businesses and households.

Sentiment brightens: UK consumer confidence picked up in November as households appeared more inclined to spend. Nevertheless, the November survey undertaken by GfK found that consumers remained preoccupied by “acute cost-of-living pressures”. Elsewhere, sentiment amongst UK businesses improved during the month, according to a survey conducted by Lloyds Bank, boosted by hopes that interest rates have peaked.

FTSE reshuffle: in the quarterly review of FTSE’s UK index constituents, alternative asset manager Intermediate Capital Group replaced investment platform Hargreaves Lansdown in the FTSE 100 Index. Companies joining Hargreaves Lansdown in the FTSE 250 Index include AO World, Tullow Oil and Trustpilot Group.



Equities bounce back: share prices generally rebounded during November amid mounting optimism that interest rates might have peaked, underpinned by encouraging inflation data from the US and the eurozone. Global economic growth is expected to slow to 2.7% in 2024 and then pick up to 3% in 2025, according to updated forecasts from the Organisation for Economic Cooperation & Development (OECD).

US inflation continues to moderate: the Federal Reserve (Fed) held its federal funds rate at a range of 5.25% to 5.5%. The annualised rate of inflation in the US eased from 3.7% in September to 3.2% in October as lower fuel prices took effect, strengthening hopes that the Fed might not feel the need to implement another rise in borrowing costs.

Stronger-than-expected growth: the US economy expanded even more robustly than first thought during the third quarter, as initial estimates of 4.9% of annualised growth were revised upward to 5.2%. Growth was boosted by strong business investment and government spending. The Dow Jones Industrial Average Index rose by 8.8% over November.

ECB holds rates: the eurozone’s rate of inflation fell from 2.9% year on year in October to 2.4% in November, compared with the European Central Bank’s (ECB’s) target rate of 2%, fuelling hopes that policymakers might start to shift to a more dovish stance in 2024. The ECB left its key interest rate unchanged at 4% during November.

Clouded outlook for Europe: the European Commission downgraded its forecast for economic growth in the eurozone from 0.8% to 0.6% in 2023 and from 1.3% to 1.2% in 2024, warning: “Heightened geopolitical tensions have further increased the uncertainty and risks clouding the outlook”. Having grown by 0.2% during the second quarter of 2023, the eurozone’s economy shrank by 0.1% over the third quarter. During the third quarter, Germany’s economy contracted by 0.1% while Italy flatlined and France expanded by 0.1%. Over November, the Dax Index rose by 9.5%.

The end of deflation? In Japan, speculation continued that the central bank might be approaching the end of its protracted period of ultra-loose monetary policy. The country’s economy contracted by 2.1% during the third quarter, dampened by slower export growth and inflationary pressures that curbed domestic demand. The OECD expects Japan’s economy to expand by 1% in 2024 and 1.2% in 2025. The Nikkei 225 Index rose by 8.5% over November.

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