Article

UK economy returns to growth

Last Week in the City provides a round-up of market movements and the global investing outlook. This covers the week to 15 March 2024.

| 7 min read

The UK economy returned to growth month-on-month in January, boosting hopes that the country is now out of the technical recession seen in the final six months of 2023. After seven weeks of gains, US equities had a lacklustre end to the week after higher-than-expected US inflation caused the market to reappraise the Federal Reserve pace of interest rate cuts.

Over the week, the blue-chip FTSE 100 index was up 1.1% by mid-session on Friday, with the more UK-focused FTSE 250 trading down 0.4%.

Energy

Brent crude oil prices hit a four-month high of around $84 a barrel. The International Energy Agency (IEA) forecast that global oil markets will face a supply deficit throughout 2024, instead of the surplus it previously expected. In early March, Saudi Arabia and its partners agreed to prolong roughly 2 million barrels per day of production cuts to the middle of the year, which the IEA assumes will continue until the end of the year.

Economics

Traders have again pared their bets in the futures for Federal Reserve rate cuts, with the market indicating just three quarter-point reductions this year. This is in line with Fed officials’ projections from December. US inflation topped forecasts for a second straight month in February as prices jumped for car insurance, air travel and clothes, supporting the Federal Reserve’s cautious approach to cutting interest rates. Hotter-than-expected producer price inflation and lower-than-anticipated jobless claims also sparked speculation that the US economy can withstand elevated borrowing costs for longer. The 10-year Treasury yield rose above 4.20%.

The UK economy saw an upturn in January, raising hopes the recession seen in the second half of 2023 is over. The economy grew by 0.2% month on month, figures show, boosted by retail sales and more construction activity. The data was in line with what economists were expecting.

China pledged central government funds to encourage consumers and businesses to replace old equipment and goods, as it aims for economic growth of about 5% this year. Equipment renewal projects can receive support from the central government budget alongside tax breaks and targeted lending from banks, China’s State Council said.

Geopolitics

The US House of Representatives passed a bill to ban TikTok in the US unless its Chinese owner sells the video-sharing app. President Joe Biden has said he’d sign the legislation if it passes, even though his re-election campaign recently joined TikTok. The bill marks the most significant congressional attempt yet to restrict the platform. The law’s proponents argue that China’s government has sway over ByteDance and uses the app as a propaganda tool. TikTok told employees the company isn’t planning to change its approach.

Voting has begun in Russia's presidential election, which is all but certain to hand Vladimir Putin another six years in power.

Beijing published a set of rules that tighten scrutiny over stock market listings, public companies and underwriters, as regulators ramp up efforts to revive investor confidence. Regulators will vet initial public offerings (IPOs) more closely, crack down hard on securities fraud, and encourage listed firms to increase dividend payouts and buy back shares. The goal is to make China's capital market "safe, regulated, transparent, open, vivid and resilient".

Voting has begun in Russia's presidential election, which is all but certain to hand Vladimir Putin another six years in power. Ballots will be cast over three days, even though the result is not in doubt as he has no credible opponent.

The continent of Europe is seeing a wave of populist voting as significant minorities of the electorates give up on the traditional centre-left and centre-right parties. Should investors worry about European populism?

Wars continue to hang heavy on markets.

Company news

Shell reduced its 2030 carbon reduction target and scrapped a 2035 objective, pointing to expectations for lower power sales and strong demand for gas in the energy transition – but still plans to cut emissions to ‘net zero’ by 2050. The changes to the targets are a central pillar in new chief executive Wael Sawan's strategy revamp to focus on higher-margin projects, steady oil output and growth in production of natural gas in order to boost returns.

Metro Bank will end seven-day trading in all its branches and cut about 1,000 jobs after racking up huge losses. From 29 March, all 76 branches will close on Sundays and Bank Holidays, with more than half of them closing on Saturdays as well. The lender also said it would cut 22% of its workforce by mid-April.

US investment group Elliott Advisors will not make a takeover bid for Currys after being rejected by the retailer's board "multiple times". It had initially proposed an offer that valued the electricals chain at £700m, and then raised it to £757m. Currys’ management said that they "significantly undervalued" the business. The electrical retailer could still receive a bid from China's JD.com, which said last month it was mulling an offer for the company.

Shares in Persimmon fell after it warned that tough market conditions were continuing, despite hopes of an upturn in the housing market. The housebuilder also reported a worse-than-expected 52% slump in full year profits. The housing sector has seen signs of stability since the start of 2024 as mortgage rates eased, but the Bank of England intends to keep interest rates high for some time to ensure the battle with inflation is complete.

Shares in Vistry surged after the UK housebuilder posted a jump in annual profits, unveiled another £100m share buyback and forecast higher completions in 2024, driven by strong demand. The group, which now focuses on social housing, said there had been a “notable pick-up” in demand from private rental sector providers in recent months.

The UK competition regulator said it was taking an initial look into Barratt Development’s £2.52bn takeover of homebuilding rival Redrow. The Competition and Markets Authority (CMA) said it was seeking initial views on how the deal could impact competition in the UK.

Swisscom announced plans to buy Vodafone’s Italian operation for €8bn, enabling the UK telecom operator to return €4bn to shareholders. Vodafone has now raised €12bn from the sale of its Spanish and Italian divisions combined.

Nothing on this website should be construed as personal advice based on your circumstances. No news or research item is a personal recommendation to deal.

UK economy returns to growth

Read this next

Inheriting investments? Here are five tips to help you

See more Insights

More Insights

Article
Hot inflation hits rate-cut hopes
By Garry White
Chief Investment Commentator
12 Apr 2024 | 11 min read
Article
Fed speak upsets markets
By Garry White
Chief Investment Commentator
05 Apr 2024 | 7 min read
Article
UK recession confirmed
By Garry White
Chief Investment Commentator
28 Mar 2024 | 6 min read
Article
Equity rally continues
By Garry White
Chief Investment Commentator
01 Mar 2024 | 7 min read