Weekly Market Update – Week Ending 16/02/24

As earnings season continues, economic data was also the focus of investors’ attention this week.

On Wednesday, UK inflation for January came in at 4% on an annualised basis. This showed prices were rising at the same rate as the December data, but were lower than market expectations of around 4.2%. The pound fell against most developed market currencies as a result, with the data prompting investors to increase the probability that interest rates might start to be cut as early as June in the UK.  With the inflation rate still double the central bank’s target, falls over the coming months will need to be seen before policymakers can make any such commitments.

On Thursday, we got the news that the UK officially entered a recession, which in the UK, means two consecutive negative quarters of economic growth. According to data released by the Office for National Statistics, gross domestic product (GDP) fell 0.3% in the final quarter of 2023, compared with the previous quarter, and this followed a 0.1% fall in the third quarter. The contraction was greater than economists had forecast (-0.1%) but doesn’t change the expectation that this recession is likely to be mild and relatively short-lived.

The granular GDP data will certainly be scrutinised by the Bank of England’s monetary policy committee. They are not scheduled to set interest rates until the 21st March, although I would expect some of the members to provide statements to the media in the weeks preceding the meeting.

John Naylor, Chartered FCSI – Head of Investment Committee