19th July 2024

Inflation and interest rates remained at the forefront of investor concerns throughout Q2 2024. However, the news was more optimistic than previous quarters, with inflation rates lowering to be close to central banks’ targets. This shift paved the way for a fascinating move: the European Central Bank became the first major central bank to ease monetary policy by lowering its base rate by 0.25% (source: European Central Bank). Whilst a modest step, it signalled a long-awaited change of direction in that the first of the world’s major central banks had shifted policy.

Despite this progress, challenges remain. Some measures, particularly wage inflation and job growth, have proven persistent in several economies, despite rising unemployment figures now at around 4% in both the US and UK (source: Capital Economics). This in large part explains the cautious approach of the US Federal Reserve and the Bank of England, both maintaining interest rates at their elevated levels.

The economic growth picture presented a mixed bag. The US economy showed resilience, forecast to grow at 2.1% annualised in Q2 according to the Federal Reserve of Philadelphia. By contrast, the UK, following a mild recession, experienced flat growth in April after a brief period of expansion. This trend mirrored the broader Eurozone. The slowdown in many major economies is a deliberate consequence of rising interest rates, a tool used to curb inflation by reducing demand.

Looking beyond western markets, China’s economy, which had been severely weakened in 2023, exhibited strong signs of recovery throughout Q1 and into Q2. A report by Deloitte suggests growth is expected to top 5% this year, fuelled by significant increases in industrial output and rebounds in both trade and consumption. In Japan, a weak yen and renewed investor confidence are also driving markets, though the country is expected to post a contraction of GDP for the quarter.