2023 was another difficult year. The post-Covid blues was swiftly followed by the cost of living crisis and rising interest rate environment which has left many wallets feeling particularly tight. There were positives, for instance GDP finally being higher than the pre-pandemic level. Notwithstanding, it’s now 2024, and we can take a fresh look at the prospects for the new year.
2024 looks set to be a highly political year, a factor that could have a significant impact on markets and interest rates. The Russo-Ukrainian War is now in its third year, the conflict in the Middle East is intensifying and there are f course increasing tensions between China and Taiwan – all of which adds to uncertainty. Taking place in economically valuable areas, these conflicts have further potential to disrupt markets and strain trading relationships. Additionally, 2024 is a crucial year for politics, with general elections taking place in countries representing 60% of global GDP. The election race in the United States, being the biggest economy in the world is a critical ballot, as this will be a significant determining factor in the political and economic outlook for the entire world for the next 4 years. A second Trump presidency could have a detrimental impact, from straining the US-China trade relationship, to market deregulation and the introduction of significant tax cuts. Naturally, it is difficult predict what the new year will spell out politically, but there is certainly plenty of scope for significant change.
2024 looks be an interesting year fiscally. It is widely expected that inflation will fall and with this, the Federal Reserve as well as a number of other national banks are finally looking to reduce interest rates. Advanced economies have shown plenty of resilience through the recent headwinds, however, it remains a question whether enough has been done to stave off inflation, or will banks need to U-turn on their direction of travel in the not too distant future.
Another interesting topic is that of China. China’s housing market continues to struggle raising questions about the trajectory of the economic boom that it has been experiencing over the last few years, having contributed around half of worldwide GDP growth over the last decade, this a change is this trajectory would clearly be of great significance to the global economy. Due a falling level of demand, construction companies are scaling back their operations, with the Chinese government pledging billions in an attempt to correct this crisis before it spirals out of control. This will be an interesting story to follow as the year progresses, due to the detrimental impact this could have on the world economy as a whole.
Artificial intelligence was one of the buzzwords of 2023, with the introductions of Chat-GPT and Bard etc. having a significant impact. We are in the early stages of a technological revolution which is sure to continue over the next few years. In 2024, this trend is likely to continue, increasing productivity and boosting growth. Nevertheless, it equally brings with it concerns, as it has the potential to threaten a number of job sectors and increase inequality. It will likely also play a significant role in elections this year, spreading disinformation and promoting fake news.
Let’s talk about the UK
2023 was an interesting and tumultuous year for the UK politically. The impact of scandals, culture wars and party in-fighting have left the ruling Conservative party seeming fractured and shaky heading into what will likely be an election year. The economic side of things, similarly, has been rocky. Inflation has come down at a much faster rate than expected, yet the Bank of England has still had to hike interest rates to steep levels. In addition to that we are experiencing a significant housing crisis, mortgage rates are eye wateringly high with many households struggling to keep up, while landlords are charging the highest rent levels on record.
There is however, good news ahead, such as the indication that interest rates have now finally peaked, meaning the Bank of England will be cutting them in the foreseeable future. Further, housing prices appear as if they will start dropping again. This trend started in 2023, with prices dropping at the fastest rate in a decade, attributable to increasing mortgage rates. This rate of decrease is expected to drop, however, as interest rates ease. Real wages (wages adjusted for inflation) are similar, slowly increasing, having been falling up until June. Nevertheless, it will still be an unpredictable year. We don’t know when an election will take place, with the potential date being anywhere from May to January of 2025. Naturally, the Conservatives will attempt to take steps to stay in Downing Street, through tools such as tax cuts. How this will impact the economy is yet to be clear.
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