The past 12 months have been a turbulent time for the UK economy. At times like these, it can be easy to become swept up in the headlines and feel disheartened.
Despite this, as you step into a new year, there are plenty of reasons for positivity. Read on to learn five reasons to feel optimistic about the economy in 2024.
1. Inflation has fallen significantly in the past 12 months
One of the most widely reported economic news stories of 2022 was the sharp rise in inflation across the globe, resulting from a combination of factors including:
- The lasting effects of the Covid pandemic
- Supply chain disruptions
- The war in Ukraine.
While prices are still rising more quickly than the government would like, the good news is that inflation has fallen significantly throughout 2023. After peaking at 11.1% in October 2022, the Office for National Statistics reported that inflation had fallen to 3.9% in November 2023.
So, even though prices are still rising, they’re rising much more slowly than they were. This is good news for the economy as we move into the new year.
2. Interest rate rises may have peaked
In response to the elevated rates of inflation the UK has experienced, the Bank of England (BoE) has increased interest rates. The base rate has risen from 0.1% in December 2021 to 5.25% in August 2023.
The reason for the increases is to encourage more people to save their money than spend it, since borrowing becomes more expensive while saving becomes more lucrative. The BoE hopes that, as a consequence, demand for goods and services will fall, which can help to bring prices down.
The interest rate rises have put pressure on businesses and individuals alike, but the good news is that the BoE has chosen to hold rates steady at their last three meetings.
Following the larger-than-expected drop in inflation in November, Reuters reports that markets are pricing in a 50% chance that interest rates will fall in the first half of 2024.
This is great news for the economy, since it could help to boost consumers’ spending power in the coming months. When consumers can spend more, businesses are more likely to thrive, and the economy can grow.
3. Global stock markets rallied during 2023
2022 was a rather muted year for global stock market returns, with J P Morgan reporting that the highest performing index, the FTSE 100, returned just 0.3% for the year.
In 2023, though, fortunes seemed to change dramatically.
The J P Morgan report shows that the highest performing index was the Japan TOPIX, delivering year-to-date returns of 28.6% in December. Even the lowest performing index, the MSCI Asia ex-Japan, returned 2.7%, significantly above the top performer for the previous year.
It’s important to note that past performance is no guarantee of future performance. But what these figures do show is that, even if returns are lower than you’d hoped, recovery is possible.
Moreover, the fluctuations in performance from year to year demonstrate the importance of a well-diversified portfolio. By balancing your portfolio with a range of asset classes and sectors, you can mitigate the risk that your wealth is exposed to.
4. The UK economy has outperformed expectations in 2023
In January 2023, you may have noticed articles predicting a recession for the UK.
The BBC reported that the International Monetary Fund (IMF) expected the UK economy to shrink by 0.6% across the year. It also suggested the economy would perform worse than most major economies across the world, including Russia.
Of course, economic and stock market performance are notoriously difficult to predict, and fortunately this particular prediction proved inaccurate.
Though the economy hasn’t grown by much this year, it has avoided the technical recession that many feared. KPMG reports that the UK is expected to have experienced growth of 0.5% this year and suggests that this is likely to be the case for 2024 too.
5. Remember that headlines tend to focus on the negatives
A final reason for optimism is to keep in mind that positivity rarely makes headlines.
When you’re reading the news on a daily or weekly basis, most of the financial stories will focus on the bad news or gloomy predictions. It’s these stories that tend to receive more clicks and views because humans are wired to look for threats.
While it’s helpful to ensure you remain abreast of important updates, be careful not to let yourself become disheartened. Seek out the good news stories, even if it takes a little longer, and try to tune out the noise that leads so many to rush into making rash decisions about their money.
The most important factor in your financial plan is always your own personal goals. Keep these at the front of your mind and you’re much more likely to make sensible decisions that lead to successful outcomes.
Get in touch
If you’d like to learn more about how we can help you to navigate the changing economy and stay on track with your long-term financial plan, please get in touch.
Email admin@stonegatewealth.co.uk or call us on 01785 876222.
Please note
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.
This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.
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