UK
UK equities fall in January: share prices fell during January as an unexpected uptick in the rate of UK consumer price inflation dampened optimism over the likelihood of interest rate cuts. The FTSE 100 Index fell by 1.3% over the month, while the FTSE 250 Index declined by 1.7%.
Inflationary pressures bite once again: having fallen every month since February 2023, the annualised rate of inflation rose in December from 3.9% to 4%, driven up by higher costs for alcohol and tobacco. The news curbed expectations of an imminent cut in interest rates and pushed up gilt yields. Core inflation – which strips out volatile factors such as alcohol, tobacco, food, and energy – remained unchanged at 5.1%. Although food price inflation has eased, the British Retail Consortium retained a cautious outlook, highlighting the risks posed by cost pressures, including higher business rates and disruption to shipments going through the Red Sea.
UK economy rebounds in November: the UK economy expanded by 0.3% during November, following a 0.3% contraction in October. The International Monetary Fund maintained its forecast for UK economic growth this year at 0.6% but cut its 2025 forecast from 2% to 1.6%. Business confidence shows signs of improving, according to the British Chambers of Commerce, which reported that 56% of UK companies anticipate an increase in revenues over the next 12 months.
Bank dividends bounce back: underlying growth in dividends paid by UK listed companies during 2023 rose by 5.4% to £88.5 billion, led by payouts from banks, oil, and utilities companies. According to Computershare’s quarterly Dividend Monitor, the banking sector was the highest-paying sector for the first time since 2007. Looking ahead, Computershare expects underlying dividend growth to moderate to 2% in 2024, representing a total payout of £89.8 billion.
2023 profits warnings outstrip 2008: although the number of profits warnings issued by UK listed companies in 2023 was lower than 2022 – falling from 305 to 294 – the proportion of companies publishing profits warnings in 2023 exceeded that of 2008, during the Global Financial Crisis. According to EY-Parthenon, 18.2% of listed companies published profits warnings last year as higher borrowing costs, supply chain disruptions and fragile consumer confidence took their toll. The sectors issuing the most warnings were industrial support (25 warnings), retailers (24) and software & computer services (21).
Global
Cautious optimism from the IMF: the International Monetary Fund (IMF) believes “the clouds are beginning to part” and expects the global economy to achieve a soft landing, underpinned by lower inflation and steady growth, although it remained cautious over the impact of shipping disruptions in the Red Sea and the ongoing war in Ukraine. The IMF upgraded its forecasts for global economic growth from 2.9% to 3.1% this year and called on central banks to prioritise price stability.
Fed remains hawkish: US share prices rose during January, stoked by a strong performance from the technology sector and by mounting hopes that interest rates might start to decline. However, investors’ optimism was checked at the end of the month by a hawkish tone from the US Federal Reserve (Fed). As expected, Fed policymakers left the key interest rate unchanged at 5.25% to 5.5%; nevertheless, officials played down any prospect of a rate cut in March, with Fed Chair Jerome Powell commenting: “We’re wanting to see more data”. The rate of consumer price inflation in the US rose from 3.1% to 3.4% year on year in December, and a rate cut now appears to be more likely in the second quarter. The Dow Jones Industrial Average Index rose by 1.2% over January as a whole.
Germany on the edge? The eurozone’s economy flatlined during the final three months of 2023, narrowly avoiding recession after a third-quarter contraction of 0.1%. Germany’s economy contracted by 0.3% during the fourth quarter, intensifying concerns over the prospect of recession in Europe’s largest economy. The annualised rate of eurozone inflation rose by 2.4% to 2.9% during December, fuelled by higher energy costs. However, core inflation eased from 3.6% to 3.4% year on year.
Caution in Europe: the European Central Bank (ECB) sounded a cautionary note over the region’s growth prospects, warning of a possible recession in the second half of 2023 and “weak prospects for the near term”. ECB policymakers left interest rates unchanged at their January meeting. The Dax Index rose by 0.9% during January.
Strong yen supports Japanese exporters: Japan’s benchmark Nikkei 225 Index reached its highest level since February 1990 during January, pushed up by a weak yen and strong performance from US technology stocks. During January, the Nikkei 225 Index rose by 8.4%.
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