Latest Economic Update from Investec Wealth & Investment (UK)

12th January 2024

Investec Wealth & Investment (UK) have released their latest economic update report which provides views of markets, the latest economic trends and prospects for 2024.

A summary of the full report:

In terms of the domestic outlook, the UK is looking much less of an outlier following November’s CPI inflation print which, at 3.9%, was well below the expected 4.4%. Producer Price Inflation (a measure of wholesale prices) also remains negative and has been since the summer, which should help to keep consumer prices down in the months ahead. Furthermore, falls in wholesale gas prices mean energy costs are likely to come down from April and this, combined with real wage growth, should help UK consumers navigate the increased cost-of-living. In turn, consumer strength will be supportive of the services sector, even as manufacturers struggle with higher rates.

Despite these more positive signs, risks remain and the Bank of England will be reticent to lower rates too early or too quickly, in case this leads inflation to rebound. Positive real wage growth in the UK also increases the likelihood that the Bank of England will act more slowly when compared to central banks in other developed markets. Nevertheless, lower inflation is to be celebrated and removes the need for further rate rises.

Other matters considered in our report are summarised below:

  • The year 2023 started with turmoil in sovereign markets and equity markets at their lowest point, but risk-assets delivered strong gains over the final weeks of the year.
  • The primary fuel for the rally was a shift in the outlook for interest rates in 2024, with traders bringing forward the expected date of the first reductions as well as pricing in deeper cuts.
  • The US economy proved to be incredibly resilient, while China remained sluggish, with the unwinding of an epic real estate bubble still casting a long shadow over the wider economy.
  • Rising interest rates and bond yields led to the demise of a regional US bank called Silicon Valley Bank (SVB), but the swift and constructive reaction of the US central bank and other regulatory bodies prevented the episode from escalating into a major banking crisis.
  • The first quarter report from US semiconductor chipmaker Nvidia was a major turning point for markets, with AI expected to be the catalyst for the next big technology revolution.
  • The big move in markets during the third quarter was downward, with a relentless rise in government bond yields driving most risk-assets lower.
  • The US was the standout performer of 2023, with the S&P 500 Index delivering a total return of 26.2%, while the UK's FTSE 100 returned 7.7%.
  • Meanwhile, the equivalent European Index of leading Continental companies (the Eurostoxx 50) returned a decent 23.2% in 2023, with technology and banks being the biggest sectors.
  • Investment grade (i.e. more creditworthy) corporate bonds had been on a two-year losing streak, but broke out of this in 2023, with the relevant index posting a gain of 5.7% (this being the Bloomberg Global Aggregate Dollar index)
  • The markets' rally during November and December provided a clear example of the benefits of staying the course when investing for the longer term.

Click here to read the report in full 

For further information, or for support and advice or guidance in relation to other financial matters, please contact Jason Hallam (jason.hallam@investecwin.co.uk) or Sam Olley (sam.olley@investecwin.co.uk).

For more information on Investec Wealth & Investment (UK), visit Investec Wealth & Investment (UK) | Part of Rathbones Group.

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