2024 certainly had its moments, now we head into the first year of a second term for Donald Trump, and this time he appears to have control of the legislature as well. As before, he is touting dramatic hikes in trade tariffs, draconian action on immigration and promoting some doubtful loyalists to top jobs in the new administration. American stock markets initially cheered his victory in the hope of lower taxes and regulation, I wonder if this might be a shade premature. As ever, much of the hype appears designed to unsettle (and to be contradictory), the reality promises to be interesting (and volatile!).

The central banks didn’t altogether play ball in 2024, the US Federal Reserve and the Bank of England have held rates higher for longer than expected. But it is hard to carp at the Federal Reserve (the Fed), which does appear to have played its hand to perfection and is delivering on the hoped for ‘soft landing’ for the US economy. The Fed did ‘disappoint’ with a quarter point cut to 4.5% in their base rate in the last few weeks and a decidedly more ‘wait and see’ tone to Chairman Powell’s comments. With a capricious new President about to move into the White House this looks sensible.

The Bank of England is in a bit of a bind with the economy apparently moribund, while service inflation (and wage growth) remains high enough to deter them from cutting rates any faster. But these are worries/indicators that lag, and companies are less likely to be in the mood for further wage rises after the increase in their National Insurance bill. The Bank of England is likely to resume its cuts over the first quarter.

Rachel Reeves’ budget was a bit of an anti-climax after so much trailing of possible personal tax-raising measures, but the new Government continues to disappoint with their ‘growth agenda’. As we move into the new year this is developing into something of a mini-crisis with pressure on sterling and higher borrowing costs. They have no one to blame but themselves after ‘talking down’ the economy so much and focusing all the tax increases on businesses, and this is now being reflected in the actual growth figures. Herein lies a trap, without some positive action on growth (no more ‘reviews’ please!), the tax take will fall again, and we’d be back to another ‘tough’ budget.

The more positive side to this is that interest rates do now offer respectable returns over and above inflation and there are some great opportunities emerging in our markets. Equally, it has been pleasing to see/hear a hiatus in the near-constant stream of ghastly geo-political headlines that we saw last year. Maybe this is temporary, but it has been good to see Russia and Iran look foolish.
 

The full Quarterly Review is available here.

January 2025

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