Metis AM
As we approach the halfway point of 2024, it can be helpful to look back and take stock as you prepare for the second half of the year. This is not just about reflecting on what could have gone better; it’s also about celebrating the successes from recent months.
As humans, we’re naturally wired to look for negatives, so you may not be used to looking for the good news. Indeed, after several years of falling economic output and rising interest rates, it’s been difficult to find reasons for optimism.
Fortunately, the first half of 2024 has delivered several economic successes for the UK, making it more likely that 2024 could end on a high in many ways. So, read on to discover some great reasons to be optimistic about the UK economy as we enter the second half of 2024.
1. Gross Domestic Product grew by more than anticipated in Q1
After eking out limited growth for several years, the UK economy experienced a shallow recession in the second half of 2023. It contracted for two consecutive quarters, meeting one of the criteria that economists use to define a technical recession.
The good news is that, in Q1 of 2024, the economy grew by more than predicted. FTAdviser reports that the economy grew by 0.6% in Q1, exceeding the Bank of England’s (BoE) predicted 0.4% growth and outpacing growth in the US and the eurozone for the same period.
The growth has been largely attributed to the production and services sectors, which compensated for a slight drop in output in the construction sector.
2. Inflation is continuing to fall
In its latest data release, the Office for National Statistics shared that UK inflation fell to 2% year-on-year in May this year. This is the lowest it has been since July 2021, and a welcome drop from the inflationary peak of 11.1% in October 2022.
The fall is thought to be the result of falling food prices compared to this time last year. The cost of motor fuels rose slightly in this period, while they had fallen this time last year, but this rise was not significant enough to offset the drop in other sectors.
The BoE is responsible for keeping inflation to its target of 2%, so April’s figure shows that price rises seem to be returning to normal. This is good news for consumers, as many may have found that the high rates of inflation in recent years have affected their expenditure and, as a result, potentially hampered progress towards their financial goals.
3. Interest rates are likely to fall by the end of this year
The BoE began to increase the base interest rate in December 2021 in response to the rapidly rising inflation that was affecting the economy. The base rate was increased 14 consecutive times and has been held at 5.25% since August 2023.
Markets have been predicting a cut to the base rate for some months now. The BBC reports that the BoE has stated that more evidence is needed that inflation has reliably fallen to its target level before they can consider cutting the rate, though they are optimistic that things are moving in the right direction.
As of 10 May 2024, markets anticipate that the base rate will fall to 5% in August and 4.75% in November, with further cuts expected in 2025.
Lower interest rates are good news for mortgage-holders or first-time buyers, as they may be able to secure more competitive rates on their mortgage or re-mortgage.
4. The stock market has reached new record highs in recent weeks
Reuters reports that both the FTSE 100 and FTSE 250 have reached new highs in the past few weeks. On 3 May, the FTSE 100 rose to a record high of 8,213.49 points, and the FTSE 250 achieved its highest levels since February 2023.
The performance is likely based on improved investor sentiment, as price rises cool and many are predicting that the BoE may soon cut interest rates.
It’s important to remember that the stock market is not the economy. Unlike economic growth, stock market movements are based on investors’ expectations of what a company’s earnings may be in the near future. So, even if current conditions are less than ideal, the stock market can still rise if investors believe that conditions will improve very soon.
So, while there are no guarantees either way, when the stock market performs well, this is an indication that the economy could be about to improve too.
Get in touch
If you’re worried about how the economy might affect your wealth, we can help you to create a financial plan that protects your money from the effects of short-term economic uncertainty. This can help you feel more confident about achieving your long-term goals.
Email enquiries@metiswealth.co.uk or call 0345 450 5670 today to find out what we can do for you.
Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.
Your home may be repossessed if you do not keep up repayments on a mortgage or other loans secured on it.
