11th April 2024

The first quarter of 2024 unfolded with a striking contrast of economic resilience and global tension. The United States, for example, continued to display surprising strength, with GDP growth estimated at around 3% and a still-robust labour market. Europe, as well as the United Kingdom, enjoyed a more positive – or less negative – economic picture compared to recent quarters. Consumer spending in the UK improved, with signs of inflation markedly ticking down and a possible resurgence in the property market. Additionally, the UK labour market showed signs of loosening, potentially providing some relief to wage pressures, a factor that has kept services inflation (e.g. hospitality and education) elevated.

However, this optimistic economic narrative was rivalled by a deteriorating global environment. Tensions between the West and China continued to escalate, fuelled by accusations of espionage and restrictions on trade, such as China’s potential ban on Intel products. The ongoing invasion of Ukraine by Russia has cemented the end of the so-called “peace dividend” in Europe, whilst Israel’s, what many are now perceiving to be, heavy-handed war against Hamas has returned the Middle East to a hotbed of instability.

Despite these geopolitical headwinds, interest rates remained the focal point for markets in the first quarter of 2024. The Federal Reserve in the US surprised some by considering potential rate cuts despite a strong labour market and economic growth, although the matter of when to cut rates is increasingly becoming a political battleground, as November’s election starts to loom. This shift in stance likely stems from an improved inflation situation, which is also apparent in the UK and Europe. It is an open debate as to which central bank will lower interest rates first, although most are agreed it will be this year for nearly all.

However, a notable outlier emerged in Japan. The Bank of Japan, after decades of deflationary pressures, surprisingly raised interest rates. Many commentators are increasingly positive on the Japanese economy, especially as wages have also been rising, after a lengthy period of languishing.