UK
Cautious Bank of England: the FTSE 100 Index ended 2024 in positive territory, rising by 5.7% over the year to notch up a fourth consecutive year of positive gains. However, the blue-chip index fell by 1.4% over December; investor sentiment was dampened by a cautious Bank of England (BoE), which now expects zero economic growth in the final three months of the year. The insurance sector came into focus during the month following the news that FTSE 100 index constituent Aviva had agreed to buy mid-cap stock Direct Line in a deal worth £3.7 billion. The FTSE 250 Index fell by 0.7% in December but rose by 4.7% over the year. Elsewhere, the yield on the benchmark UK government bond rose from 3.54% at the end of 2023 to end 2024 at 4.57%.
Tighter for longer? Persistent inflationary pressures stoked expectations that interest rates are likely to fall more slowly than previously hoped. During December, the BoE kept its key interest rate at 4.75% following the news that the annualised rate of consumer price inflation had risen for a second consecutive month from 2.3% to 2.6%, reaching its highest rate since March. Core inflation climbed from 3.3% to 3.5%, while inflation in the services sector remained at 5%. The Organisation for Economic Cooperation & Development (OECD) warned that UK monetary policy is likely to remain “tighter for longer” because of some of the measures in the October Budget and predicted that rates will fall to 3.5% by early 2026.
Lacklustre growth: the UK economy stagnated during the third quarter of 2024, according to the Office for National Statistics, which revised down an earlier growth estimate of 0.1%. The economy shrank by 0.1% in October, following a contraction of 0.1% in September. The British Chambers of Commerce (BCC) downgraded its 2024 growth forecast for the UK from 1.1% to 0.8% but raised its 2025 forecast from 1% to 1.3%. The BCC expects inflation to remain above its 2% target until the end of 2026 and warned that businesses face the prospect of navigating rising cost pressures alongside higher employers’ National Insurance contributions. According to GfK’s Consumer Confidence Index, confidence picked up slightly in December following a post-Budget dip, as UK consumers became more sanguine about the prospects for their personal finances. However, the index remained firmly in negative territory overall.
Global
A strong 2024 for the US: although the Dow Jones Industrial Average Index (DJIA) fell by 5.3% in December, dampened by uncertainty over the pace of future rate cuts, it rose by 12.9% over 2024, underpinned by a resilient domestic economy, lower interest rates, and hopes of deregulation and lower taxes under the impending Trump administration. Meanwhile, the technology-rich Nasdaq Index breached 20,000 points for the first time during December, driven up by leading technology stocks including Nvidia, which rose by more than 171% over 2024.
Rate cuts in US and Europe: the Federal Reserve (Fed) cut interest rates by 25 basis points in December, following earlier cuts in September and November, taking the key federal funds rate to a range of 4.25% to 4.5%. The rate of consumer price inflation rose from 2.6% to 2.7% in November and Fed Chair Jerome Powell commented: “From this point forward, it’s appropriate to move cautiously and look for progress on inflation.” The European Central Bank (ECB) also cut interest rates in December, reducing its deposit rate by 25 basis points to 3%. News of the cut pushed the pound to its highest level against the euro since the Brexit vote in 2016. ECB President Christine Lagarde stoked expectations of further cuts to come, saying: “The direction of travel is clear, and we expect to lower rates further.”
Lacklustre outlook for Germany: Germany’s economy is predicted to struggle this year: the Bundesbank warned that the global rise in protectionism is set to be a key source of uncertainty. Germany’s Dax Index rose by 1.4% in December and increased by 18.8% over the year, boosted by a strong contribution from its largest constituent, software company SAP. In France, however, the CAC 40 Index rose by 2% in December but declined by 2.2% over 2024, reflecting the country’s recent political upheaval.
Uncertainty in Japan: policymakers at the Bank of Japan (BoJ) voted by eight to one to leave its key interest rate unchanged at 0.25%. In a speech during December, BoJ Governor Kazuo Ueda warned of “high uncertainties surrounding future developments” in the US and elsewhere, citing the potential economic impact of the incoming Trump administration. The Nikkei Index rose by 4.4% in December and by 19.2% over 2024.
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.