Written By Marcus Rayer
September closed off the third quarter of 2023, offering an opportunity to reflect on the performance of markets during the last three months and look forward to Q4 in our latest update from the financial world.
In terms of the UK economy, we saw negative growth in July followed by positive growth in August and, as such, experts continue to remain optimistic about a future upward trend. Bloomberg consensus for World GDP growth in 2023 supports this, showing growth forecasts have risen from a low of 2.1% in February to a current 2.7%. The outlook for 2024 continues to suggest limited progress, with estimates at 2.60%, but progress nonetheless.
It is of wide opinion that we are at the top of the interest rate cycle, with the Bank of England holding the base rate at 5.25%. One of the first positive signs we have seen as a result – particularly for individuals with mortgages – is the mortgage market starting to stabilise and open up, with more competitive rates hitting the market. A similar view is shared in Europe where the European Central Bank also left its deposit rate unchanged, with the focus now turning to how long rates may stay at current levels and how fast they might eventually fall as a result.
Positivity on the performance of the markets in July has now, however, been somewhat dampened, with experts predicting that rates may now remain “higher for longer”- a phrase we continue to hear from central banks which may sound somewhat concerning for investors. Many would suggest we are in a position where most of the damage has already been done unless rates need to be raised further due to any further spikes in inflation. Market pricing suggests that rates will only be cut faster once economies show increased signs of weakness.
Looking at the US, it is still a possibility that higher rates could eventually push their economy into recession and that the Fed will, in fact, be forced into cutting rates a lot faster than it is currently willing to admit. However, this furthers popular belief that we have likely reached the peak of the interest rate cycle.
In terms of tackling inflation, the recent rises in the price of oil are causing concern at the moment, with Brent crude costs per barrel increasing back towards those seen a year ago. As this stands, this means that oil prices are no longer helping to reduce inflation. This is due to production cuts in Saudi Arabia and Russia, emphasising the ongoing geopolitical risks we are seeing across the globe.
When reflecting on this quarter we must remind ourselves that there is a cycle at play here, which is all part of a long-term investment strategy. With that in mind, historical trends show that things will turn in our favour within that cycle.
If you have any questions regarding this update or would like to discuss your own investments, please do not hesitate to contact your Integrity365 adviser.
Written By Marcus Rayer
