Having slipped into recession in the final three months of 2023, the UK economy posted month-on-month growth of 0.2% in January, raising hopes that the economy may be picking up. Activity was boosted by growth of 0.2% in the services sector.
- UK interest rates remained unchanged in March
- CPI inflation dropped from 4.0% YoY to 3.4%
- UK dividends grew by 5.4% in 2023
UK economy rebounds: having slipped into recession in the final three months of 2023 , the UK economy posted month-on-month growth of 0.2% in January, raising hopes that the economy may be picking up. Activity was boosted by growth of 0.2% in the services sector. The FTSE 100 Index rose by 4.2% over March and by 2.8% during the first three months of the year. Meanwhile, the FTSE 250 Index posted a monthly gain of 4.4% and a quarterly increase of 1%.
“UK funds experienced an unprecedented second consecutive year of outflows last year”
No sign of a rate cut yet: as expected, the Bank of England (BoE) maintained its key base rate at 5.25%; nevertheless, expectations of a cut later this year continue to grow. The BoE expects inflationary pressures to continue to moderate, but also warned that supply chain disruptions, caused by ongoing conflict in the Middle East, could drive up prices.
Inflation eases: the annualised rate of consumer price inflation dropped from 4% in January to 3.4% in February, slowing to its lowest rate since September 2021. Although housing and energy costs rose, they were offset by lower prices for items including food and non-alcoholic drinks, alcohol and tobacco, and clothing and footwear. Elsewhere, UK consumer confidence stagnated during March, according to GfK’s consumer confidence index ; on a brighter note, UK consumers’ expectations for their personal finances moved into positive territory for the first time since December 2021.
Flight to safety: UK funds experienced an unprecedented second consecutive year of outflows last year, as withdrawals of £26.9 billion in 2022 were followed by a slightly lower total of £24.3 billion in 2023. Investor sentiment was affected by economic uncertainty, the cost-of-living crisis, and high interest rates. According to the Investment Association (IA), net inflows to money market, fixed income, and tracker funds were more than offset by outflows from equity funds; in particular, UK equity funds suffered record annual outflows of £14 billion, representing an eighth straight year of outflows. Responsible funds also fell from favour, experiencing outflows totalling £3 billion over the year.
Banks underpinned dividend growth in 2023: dividend payouts from UK companies posted underlying growth of 5.4% during 2023, and over 80% of companies maintained or increased their payment, according to Janus Henderson’s latest Global Dividend Index . Overall growth in dividends was underpinned by a strong contribution from the banking sector.
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