UK
Labour landslide: the Labour Party won a landslide victory in July’s General Election. New Chancellor of the Exchequer Rachel Reeves announced that the Budget will take place on 30 October and warned of “difficult decisions” on tax and public spending. The UK’s national debt rose to its highest level since the early 1960s, triggering conjecture that the Chancellor might have to take action to shore up public finances. Expectations of a cut in UK interest rates provided a boost for medium-sized and smaller UK companies, and these hopes were confirmed after the end of the month when the Bank of England (BoE) cut its key base rate by 25 basis points to 5%. The FTSE 100 Index rose by 2.5% during July, while the FTSE 250 Index – which represents medium-sized companies that tend to have more domestic exposure than the blue-chip index – rose by 6.5%.
IMF upgrades its forecast for UK growth: having stagnated in April, the UK economy grew by a stronger-than-expected 0.4% during May, underpinned by a strong contribution from the services and construction sectors. The International Monetary Fund raised its forecast for UK growth in 2024 from 0.5% to 0.7% but highlighted the risks posed by sticky inflationary pressures in the services sector. Its forecast for 2025 was maintained at 1.5%.
Services inflation remains sticky: the annualised rate of inflation remained unchanged at 2% in June although inflation in the services sector remained persistently strong. Meanwhile, average earnings growth slowed in the three months to May, but still outstripped the rate of inflation at 5.7% year on year. Elsewhere, the BoE’s Chief Economist Huw Pill warned that “uncomfortable strength” in service sector inflation and earnings growth continued to pose a problem for the UK economy.
Record dividend payouts in the second quarter: according to Computershare’s latest quarterly Dividend Monitor, UK listed companies paid out record dividends totalling £36.7 billion during the second quarter of 2024, representing headline growth of 11.2% year on year. However, once the impact of special dividends was stripped out – including a massive £3.1 billion from HSBC alone – total dividend payments were £32.5 billion, reflecting more muted annualised growth of 1% and reflecting dividend cuts from the mining sector. Computershare warned that share buyback programmes “across a variety of sectors (were) exerting a noticeable drag on dividends.”
Global
Political upheaval: the forthcoming US Presidential Election remain at the forefront of newsflow for much of July. While Donald Trump was officially nominated as the candidate for the Republican Party, incumbent President Joe Biden announced that he would not run for re-election and endorsed Vice-President Kamala Harris as the Democratic Party candidate.
Fed holds off: global equity markets began to wobble during July, led by investors in Asia and the US, amid a shift in sentiment towards the technology sector. Nevertheless, as the month ended, US equity markets were lifted by hopes that the Federal Reserve (Fed) might cut interest rates. In the end, Fed policymakers opted to hold rates at a range of 5.25% to 5.5%, and Fed Chair Jerome Powell commented: “The job is not done on inflation”.
Inflation eases: inflationary pressures continued to moderate in the US, dampened by falling fuel costs. The consumer price index eased from 3.3% to 3% year on year during June – and declined 0.1% month on month – fuelling hopes of a rate cut in the not-too-distant future. Meanwhile, having expanded at an annualised rate of 1.4% during the first three months of 2024, the US economy grew by 2.8% during the second quarter. The Dow Jones Industrial Average Index rose by 4.4% during July.
Germany under pressure: the eurozone’s economy expanded by 0.3% during the second quarter and, while the economies of France and Spain expanded by 0.3% and 0.8% respectively, Germany’s economy shrank by 0.1%, raising concerns over the outlook for Europe’s largest economy. Over July, the Dax Index rose by 1.5%. Inflationary pressures continued to moderate in the eurozone: the annualised rate of consumer price inflation eased from 2.6% to 2.5%, although services inflation remained relatively high. Elsewhere, investor sentiment in France was tested by political uncertainties following its snap General Election, but the CAC 40 Index ended July in positive territory, posting an increase of 0.7% over the month.
Japan tightens: the Bank of Japan bucked the global trend and raised its key interest rate to “around 0.25%” following its previous tightening action in March. The central bank also announced plans to begin reducing its programme of bond purchases. The International Monetary Fund cut its prediction for growth in Japan’s economy from 0.9% to 0.7%. The Nikkei 225 Index fell by 1.2% during July.
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.