UK
General Election on 4 July: the UK was placed on an election footing during May as Prime Minister Rishi Sunak announced a snap General Election. UK voters will head to the polls on 4 July. Although the announcement was unexpected, reaction from financial markets was comparatively muted. At present, polls indicate a clear win for Keir Starmer’s Labour Party. The FTSE 100 Index rose by 1.6% over the month, while the more domestically focused FTSE 250 Index climbed by 3.8%.
A soft landing for the UK? The UK economy is set to experience a soft landing, according to the International Monetary Fund (IMF), which raised its 2024 growth forecast to 0.7%. The IMF suggested that the BoE has scope for up to three rate cuts this year of 50 to 75 basis points each. In comparison, the Organisation for Economic Cooperation & Development (OECD) expects the “sluggish” UK economy to grow by 0.4% this year and 1% next year. The OECD predicted that UK interest rates will start to fall from the third quarter of this year but will ease to 3.75% by the end of 2025.
Inflation moves closer to target: the rate of consumer price inflation fell from 3.2% year on year in March to 2.3% in April. Although it remained above the BoE’s 2% target – and did not dip as low as expected – it reached its lowest rate since July 2021. BoE Governor Andrew Bailey said that policymakers need to see more evidence of slowing inflation before they are prepared to start reducing rates. The British Retail Consortium (BRC) reported that food price inflation fell for a thirteenth consecutive month in May to 3.2% year on year, and that shop price inflation had returned to “normal levels”.
UK exits brief recession: the UK economy moved out of its brief recession during the first three months of 2024, posting quarterly growth of 0.6%. Elsewhere, the rate of unemployment rose to 4.3% during the first three months of the year, and the number of job vacancies continued to fall, while earnings growth remained strong at 6%. Consumer confidence in the UK rose in May, according to GfK’s Consumer Confidence Index. Although overall confidence remained in negative territory, GfK commented: “All in all, consumers are clearly sensing that conditions are improving”.
Global
US markets hit fresh highs: despite the prospect of ‘higher-for-longer’ interest rates, US equity markets rebounded in May, boosted by a strong performance from the technology sector. The Federal Reserve (Fed) maintained its key federal funds rate at a range of 5.25% to 5.5%, citing a “lack of further progress” on reducing inflation; Fed Chair Jerome Powell reiterated that “it really will depend on the data”. Reports that consumer price inflation had eased from 3.5% year on year in March to 3.4% in April renewed hopes of a rate cut this year, propelling US equity markets to fresh highs mid-month. The rate of unemployment ticked up from 3.8% to 3.9% and the number of new jobs added in April was relatively muted at 175,000 compared with 315,000 in March. The Dow Jones Industrial Average Index rose by 2.3% over May.
Conditions improving in the eurozone: in its Financial Stability Review, the European Central Bank (ECB) confirmed that conditions have improved, supported by moderating inflation and improved investor confidence, but warned that the outlook is still fragile, and markets remain vulnerable to the risk of macro-financial and geopolitical shocks. European Commissioner for Economy Paolo Gentiloni commented: “We believe we have turned a corner”. The Dax Index rose by 3.2% over the month.
ECB to cut rates? Despite higher-than-expected inflation in the eurozone for May, the ECB is still widely expected to cut its key interest rate in June. The annualised rate of consumer price inflation rose by 2.6% in May, following April’s rate of 2.4%, while core inflation rose from 2.7% to 2.9%.
Yen weakness dampens sentiment: Japan’s economy shrank during the first three months of the year, contracting at an annualised rate of 2%. Against a backdrop of weakness in the yen, confidence amongst Japanese consumers deteriorated during May, and the Nikkei 225 Index edged up by 0.2%.
US dividends hit quarterly record: global dividend payments rose to a first-quarter record of US$339.2 billion, rising at a headline rate of 2.4% and an underlying rate of 6.8%. Janus Henderson’s Global Dividend Index reported that 93% of companies maintained or increased their dividend payouts. The US achieved an all-time quarterly record, and Sweden and Canada broke first-quarter records. At sector level, banks accounted for a quarter of underlying annualised global dividend growth during the period.
As ever, if you have any questions regarding your investments, please do not hesitate to contact us by calling +44 (0) 7917 390 344 or emailing me at richardbrazier@culverfinancial.co.uk and we will be happy to talk to you.