Although many global equity markets successfully rebounded from sharp declines early in August, UK share prices posted a somewhat lacklustre performance amid fading hopes of further near-term cuts in interest rates.
- The BoE Governor advised caution towards inflation
- Mid-caps underperformed blue chips
- Consumer confidence remained stable
UK share prices fall during August: although many global equity markets successfully rebounded from sharp declines early in August, UK share prices posted a somewhat lacklustre performance amid fading hopes of further near-term cuts in interest rates. Investor sentiment was also dampened by mounting speculation over the possibility of higher taxes and spending cuts in the Labour Government’s first Budget in October. The FTSE 100 Index edged up by 0.1% during August, while the FTSE 250 Index declined by 2.4%.
“We need to be cautious because the job is not completed” (BoE Governor Andrew Bailey)
BoE remains cautious: in a speech at the Jackson Hole symposium, Bank of England (BoE) Governor Andrew Bailey warned that it was still “too early” to declare victory over UK inflation, saying: “We need to be cautious because the job is not completed – we are not yet back to target on a sustained basis”. The Monetary Policy Committee’s next meeting is in September.
Inflation edges higher: the annualised rate of inflation rose from the BoE’s target of 2% to 2.2% during July, representing the first year-on-year increase so far in 2024. On a brighter note, growth in average earnings (excluding bonuses) moderated from 5.7% to 5.4% over the three months to the end of June.
UK economy expands in Q2: having grown by 0.7% in the first quarter of 2024, the UK economy expanded by 0.6% during the second quarter, lifted by activity in the services sector. The rate of unemployment in the UK eased from 4.4% to 4.2% over the three months to the end of June. According to the Office for National Statistics (ONS), summer discounting activity and sporting events provided a boost for retail sales volumes during July. UK consumer confidence remained stable overall during August, according to GfK’s Consumer Confidence Index: although expectations for the UK economy deteriorated for the first time since February, consumers appeared to be more optimistic about their personal financial outlook.
Mining sector dampens dividend expectations: dividend payments from the mining sector are set to fall further this year, dampening the outlook for overall dividend growth in 2024. According to Computershare’s latest quarterly Dividend Monitor , headline growth in dividends is predicted to be 3.8%, while the forecast for underlying growth was cut from 1.5% to just 0.1%. Nevertheless, most sectors are expected to deliver growth, underpinned by strong contributions from the banking and oil sectors.
