Our Views on the Markets and the Economy

Articles, investment updates and economic analysis

Geopolitical risk and the end of cheap money is the new normal

What is the new normal? Globally, financial markets are coming to terms with a new geopolitical, economic and policy landscape. 

The most dramatic change is geopolitical uncertainty and the risk of a further splintering world order. Many possible paths exist, and the multiple elections this year add to these.

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Stagnating economy and a pyrrhic victory over inflation

I warned of a pyrrhic victory over inflation. That is what we are now seeing as the UK economy contracted in the second half of last year under the weight of tight macro-economic policy. Inflation is 4% and is decelerating and likely to reach the 2% inflation target by the second quarter. Yet macroeconomic policy in terms of monetary and fiscal policy has remained too tight.

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Moving slowly towards much needed rate cuts

This week captured the heart of the current market debate: will it be a soft landing, or not, and with interest rates in the west having peaked, will central banks there signal a pivot to easing, or instead a continued pause?

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Data leads markets to temper expectations

2022 was the year of peak inflation. 2023 the year of peak interest rates. 2024 could be described as the year of peak politics, with seven of the ten most populous nations going to the polls. Thus, politics and geopolitics may never be far from the focus of markets, but at the start of the year attention has been more on monetary policy stances and in particular the speed and scale at which inflation and policy rates may fall in the US. 

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My responses to the Financial Times and The Times economists’ surveys for 2024

Both The Times and The Financial Times carry the results of their start of the year survey of economists. There were 41 respondents to The Times survey and the FT’s survey, which also includes several academics, had 90 respondents. My responses are shown below.

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2024: a taster of what lies ahead

What lies ahead in 2024? The key question as we enter the new year is where are we in the economic, policy and political cycle? In 2023 the focus was on inflation. In 2024 attention will switch to growth.

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The Fed signals rate cuts in the year ahead

The US Federal Reserve (Fed), the Bank of England (BOE) and European Central Bank (ECB) all decided to leave interest rates unchanged at their policy meetings this week. That was expected. Unexpectedly, however, the Fed endorsed the market’s recent thinking that rates will fall next year.

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Anticipating a downturn: Why rates should fall next year

Last week, I looked at the Autumn Statement and fiscal policy. As I noted, it would be no surprise if in the subsequent days there was to be greater scrutiny on the effect of inflation eroding the real spending power of government departmental spending, as well as on the impact it has had on boosting tax revenues. This indeed was the case.

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A £93.7 billion fiscal boost in the Autumn Statement

This is an immediate assessment of the Autumn Statement. In my view, there are a number of key takeaways:

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UK inflation is falling but prices are still stubbornly high

UK inflation has decelerated sharply and looks set to fall significantly further. It has fallen from a peak of 11.1% in October 2022 to 4.6% in October 2023. We expect inflation to undershoot its 2% target by the middle of next year. While that is good news, falling inflation is not the same as falling prices. The level of prices is now settling at a high level as they have risen sharply in recent years. Indeed, consumer prices are 22% above what they were in January 2020.

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