The economic outlook for 2024
Catherine Alexander
Partner
2023 was a turbulent year with the everlooming threat of recession. However, despite the interest rate rises, global conflicts, and energy crisis, the performance of the markets was broadly positive. In 2024 the downwards trend in inflation is forecast to continue, with avoiding recession still high on the agenda. Looking at the relatively small number of recessions throughout history as a reference point, research indicates that recession risk is highest between 14 and 24 months after the onset of inversion (which covers most of 2024) and will therefore make it another challenging year ahead. There are also political risks which could affect the markets in 2024 which include the widening turmoil in the Middle East, the continuing Russia-Ukraine war, disruption to shipping in the Red Sea from Houthi rebel attacks, and elections in countries representing 60% of global GDP (which includes the US). Market analysts are currently finding it difficult to see upward movement in the economy or a lasting improvement in investor appetite for risk, without a significant reduction in interest rates and reversal of quantitative tightening.
In terms of interest rates, the reversal of the fastest and most synchronized developed markets (DM) central bank tightening cycle of 2022–23 will start in the second half of 2024, this is against a backdrop of slow growth and falling inflation. Central banks will most likely hold rates if confidence around the ability to achieve the inflation target is high, but some will be under pressure to make additional rate hikes if the decline is too slow. In the UK investors are expecting the Bank of England to cut interest rates in 2024 from the current 5.25% however, the Bank of England has pushed back against such expectations, repeatedly insisting it is too early to consider cuts. On a more positive note, homeowners looking to remortgage are already benefiting, with major lenders cutting the cost of their fixed-rate deals to lower than 4% in some cases.
Inflation in 2024 is expected to continue its downtrend trend on fading energy pressure and weaker labour markets, as the delivered tightening starts weighing on the growth outlook. Employment is expected to fall, lifting the unemployed rate to 5% next year and 5.2% in 2025. UK inflation is also expected to continue downward, with Morgan Stanley predicting it will average 2.8% over the year, down from 3.9% in November but still over the Bank of England target of 2%.
For our clients with investments, we will continue to keep you up-to-date with the latest developments and how this could affect your portfolio. Our bespoke portfolios are designed to manage the risks associated with economic turbulence and we look forward to assisting you over the year to come, whatever it throws at us.
This article isn’t personal advice. If you’re not sure whether a course of action is right for you, ask for financial advice.
