GLOBAL NEWS AND EVENTS

SPW MarketWatch: December 2024

  • Gary McKernan
  • 16 January 2025
  • 3 mins reading time

FactSet, 13 January 2024. Figures are monthly price returns in local currencies for December 2024.

UK

It was announced in December that the UK economy shrank by 0.1% in October (1), marking the second month in a row of contraction. Chancellor Rachel Reeves attributed this downturn to the previous government's economic policies, which she said necessitated £40bn in tax increases in Labour’s autumn Budget.

The Budget announcements seem to be leading to reduced spending and investment, which are crucial for economic growth, and are also affecting consumer confidence. Additionally, UK Consumer Price Index (CPI) inflation rose for the second consecutive month, reaching 2.6% in November, up from 2.3% in October (2), moving further away from the Bank of England’s 2% target.

Given the rising inflation, the markets had already dismissed the possibility of a December rate cut by the Bank of England. This expectation was confirmed when interest rates remained at 4.75% during the final meeting of the year on December 19th (3).

Europe

In December, the European Central Bank (ECB) lowered its key interest rates for the fourth time in 2024 by 0.25% (4). The ECB also reduced its growth and inflation forecasts, indicating that more rate cuts are likely as inflation continues to ease towards the 2% target (5).

In France, Prime Minister Michel Barnier’s minority government collapsed after a no-confidence vote (6). President Macron nominated Francois Bayrou as the new prime minister, easing fears of a government shutdown (7). In Germany, Chancellor Olaf Scholz lost a no-confidence vote, leading to an early election scheduled for February (8).

US

In December, US stocks experienced a sell-off after the Federal Reserve cut interest rates by 0.25% (9). While the rate cut was expected, the Fed's indication of a slower pace of easing in the coming year disappointed investors. Many had hoped for a more aggressive approach to stimulate economic growth.

This cautious outlook on future liquidity and growth prospects led to lower stock prices.

Sources:

(1) UK economy shrinks for the second month in October - BBC News

(2) December UK inflation rate rises to 2.6%: full analysis | Moneyweek

(3) Bank Rate maintained at 4.75% - December 2024 | Bank of England

(4) Monetary policy decisions

(5) ECB Cuts Rates as Expected, Lowers Inflation,... | Morningstar

(6) French government collapses after no-confidence vote in PM Michel Barnier - BBC News

(7) Macron picks François Bayrou as prime minister to navigate France’s crisis – POLITICO

(8) Germany: Chancellor Olaf Scholz loses vote of confidence - BBC News

(9) Stocks Tumbled on New Fed Interest Rate Forecast. Here’s Why. | Morningstar

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