The Labour Party won a landslide victory in July’s General Election. New Chancellor of the Exchequer Rachel Reeves announced that the Budget will take place on 30 October and warned of “difficult decisions” on tax and public spending.
- Inflation remained at 2% for a second month
- UK companies paid out record dividends in Q2
- The IMF upgraded its 2024 UK growth forecast
Labour landslide: the Labour Party won a landslide victory in July’s General Election. New Chancellor of the Exchequer Rachel Reeves announced that the Budget will take place on 30 October and warned of “difficult decisions” on tax and public spending. The UK’s national debt rose to its highest level since the early 1960s, triggering conjecture that the Chancellor might have to take action to shore up public finances. Expectations of a cut in UK interest rates provided a boost for medium-sized and smaller UK companies, and these hopes were confirmed after the end of the month when the Bank of England (BoE) cut its key base rate by 25 basis points to 5%. The FTSE 100 Index rose by 2.5% during July, while the FTSE 250 Index – which represents medium-sized companies that tend to have more domestic exposure than the blue-chip index – rose by 6.5%.
“The UK’s national debt rose to its highest level since the early 1960s”
IMF upgrades its forecast for UK growth: having stagnated in April, the UK economy grew by a stronger-than-expected 0.4% during May, underpinned by a strong contribution from the services and construction sectors. The International Monetary Fund raised its forecast for UK growth in 2024 from 0.5% to 0.7% but highlighted the risks posed by sticky inflationary pressures in the services sector. Its forecast for 2025 was maintained at 1.5%.
Services inflation remains sticky: the annualised rate of inflation remained unchanged at 2% in June although inflation in the services sector remained persistently strong. Meanwhile, average earnings growth slowed in the three months to May, but still outstripped the rate of inflation at 5.7% year on year. Elsewhere, the BoE’s Chief Economist Huw Pill warned that “uncomfortable strength” in service sector inflation and earnings growth continued to pose a problem for the UK economy.
Record dividend payouts in the second quarter: according to Computershare’s latest quarterly Dividend Monitor, UK listed companies paid out record dividends totalling £36.7 billion during the second quarter of 2024, representing headline growth of 11.2% year on year. However, once the impact of special dividends was stripped out – including a massive £3.1 billion from HSBC alone – total dividend payments were £32.5 billion, reflecting more muted annualised growth of 1% and reflecting dividend cuts from the mining sector. Computershare warned that share buyback programmes “across a variety of sectors (were) exerting a noticeable drag on dividends.”
To view the series of market updates through July, click here
