A hawkish start to 2024 has weighed on UK equity market sentiment. But despite the surprise of higher than expected inflation, economic data remained strong, and central banks including the Bank of England (BOE) kept rates on hold.
Developed economies, including the UK, recorded higher than expected readings for the Consumer Price Index (CPI). The UK’s CPI rose 4% in the 12 months to December 2023, which was up from 3.9% the previous month. Increases in the price of alcohol and air fares were notable contributors, with the latter contributing due to an increase in its relative weighting in the CPI basket of goods and services during the year.
Inflation, combined with stronger than expected Gross Domestic Product (GDP) data in the month, caused the market to push out expectations as to when the BOE will first cut rates.
Inflation is set to fall toward the 2% target at the end of this year and interest rates currently remain at 5.25%. Against this backdrop, the Monetary Policy Committee (MPC) must balance the increase in wages and benefits that we will see throughout 2024, with the dramatic decrease in wholesale energy prices combined with a still strong jobs market. How much they are prepared to look through short-term influences in the general price level from falling energy will be a key matter of debate.
Ultimately, the month in which the first cut happens is less important than the actual terminal rate that we reach in this rate cycle. It is the terminal rate that matters for asset values, and analysts expect this to be around 3% given the outlook for inflation over the medium term.
INVESTORS COMMITTED TO UK EQUITIES
-
The Leeds Collective
Common sense investors committed to UK Equities.
-
Important Information
This information is issued and approved by Martin Currie Investment Management Limited (‘MCIM’). It does not constitute investment advice. Market and currency movements may cause the capital value of shares, and the income from them, to fall as well as rise and you may get back less than you invested.
The information contained in this document has been compiled with considerable care to ensure its accuracy. However, no representation or warranty, express or implied, is made to its accuracy or completeness. Martin Currie has procured any research or analysis contained in this document for its own use. It is provided to you only incidentally and any opinions expressed are subject to change without notice.The distribution of specific products is restricted in certain jurisdictions, investors should be aware of these restrictions before requesting further specific information.
The document does not form the basis of, nor should it be relied upon in connection with, any subsequent contract or agreement. It does not constitute, and may not be used for the purpose of, an offer or invitation to subscribe for or otherwise acquire shares in any of the products mentioned.
Past performance is not a guide to future returns.
The distribution of specific products is restricted in certain jurisdictions, investors should be aware of these restrictions before requesting further specific information.
The views expressed are opinions of the named manager as of the date of this document and are subject to change based on market and other conditions and may differ from other portfolio managers or of the firm as a whole. These opinions are not intended to be a forecast of future events, research, a guarantee of future results or investment advice.
The analysis of Environmental, Social and Governance (ESG) factors forms an important part of the investment process and helps inform investment decisions. The strategy/ies do not necessarily target particular sustainability outcomes.
Risk warnings - Investors should also be aware of the following risk factors which may be applicable to the strategy shown in this document.
- Investing in foreign markets introduces a risk where adverse movements in currency exchange rates could result in a decrease in the value of your investment.
- This strategy may hold a limited number of investments. If one of these investments falls in value this can have a greater impact on the strategy’s value than if it held a larger number of investments.
- Smaller companies may be riskier and their shares may be less liquid than larger companies, meaning that their share price may be more volatile.’
- Income strategy charges are deducted from capital. Because of this, the level of income may be higher but the growth potential of the capital value of the investment may be reduced.