“Stagnant growth, inflation and rate cut expectations dominated market rhetoric as we entered 2024. Whilst they remain at the forefront of investors’ minds, the path taken in Q1 will have taken some commentators by surprise.”

At the start of the year, we brought you our 2024 economic outlook courtesy of Sam Murray, business development manager at Privalgo, which highlighted the key considerations for economists in the next 12 months.

With Q1 of 2024 behind us, Sam reflects on the last three months and dives into expectations for Q2 in his latest economic outlook.

Read Sam’s insights below.

UK enters recession in early 2024

February saw the UK enter into recession as GDP fell for two successive quarters at the end of 2023. Bank of England Governor, Andrew Bailey, was quick to dismiss the severity of the country’s economic downturn as ‘very weak’ and ‘almost over’ within weeks of GDP data being published.

However, recent trade data hinted there may be more systemic issues with the UK economy.

Elsewhere, the EU narrowly avoided a recession and the US remains an outlier to slowing economic performance with a series of slightly more positive data prints at the start of this year.

Those hoping for an immediate rebound in performance at the beginning of the year may be lowering their expectations for the coming months.

Reflecting on global and UK inflation 2024

Inflation was at record highs coming into 2024 as the global economy continued its recovery from the Coronavirus pandemic.

Generally, the world’s largest economies have been successful in continuing to reduce their inflation figures, with the UK and Eurozone displaying falling price pressures in the first two data releases at the start of this year.

The US, however, saw a slight jump in its February publication from 3.1% to 3.2% as, more broadly, inflation numbers across the globe remain above target.

As a result, interest rate decisions and forecasts have been affected.

Will interest rates drop in 2024?

In January, markets were predicting the first cut in UK interest rates as early as March. This was pushed back to May, with current estimates suggesting the Bank of England will avoid making any changes to rates until June.

A similar story has occurred in the Eurozone and US, as policy makers remain keen to see a period of sustained low inflation before making any changes.

One thing markets seem to agree on is that the first central bank to reduce rates is likely to see a depreciation in its domestic currency. Recently, the Swiss National Bank shifted its monetary policy backward, resulting in a depreciation of the Swiss Franc.

Looking beyond, particularly in the US where the economy is performing stronger than its peers, it would not necessarily be a surprise if we see interest rate cuts pushed back further.

What’s driving USD strength?

In terms of individual currency performance, the US dollar (USD) showed resilience at the start of this year. USD has appreciated around 2.4% against the euro in the first three months of 2024 and the DXY Index (a measure of USD performance against its major trading partners) has risen 2.75% in the same period.

The US’ economic performance in a period of generally low growth globally has been a key factor in the currency’s strength. It’s consequently reduced pressure on the Federal Reserve to cut interest rates for the purpose of encouraging growth.

How will geopolitical issues affect currencies in Q2 2024?

Much like in Q1 of 2024, geopolitical concerns are still prevalent in Eastern Europe and the Gaza Strip. In early April, another ceasefire proposal was rejected by Hamas, and tensions have been heightened by the killing of aid workers by Israeli airstrikes.

In times of global uncertainty, the dollar has historically found strength as a safe-haven asset and the prolonging and/or escalation of these events in the rest of the year will likely provide support to USD.

As we move into Q2, markets will be keeping a close eye on economic data releases for clues as to what this could mean for future interest rate decisions.

With elections in the UK and US inching closer, geopolitical concerns persisting, and historical timelines suggesting another black swan event may be on the horizon, the global economy is tentatively poised.