Leading Indicators | 2024: the year of interest rate cuts, elections and manufacturing?
Discover key economic and financial metrics, and what to look out for in the week ahead.
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Here we look at the leading indicators in the world of economics.
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NEW YEAR, MORE RATE CUTS?
Due to softer-than-expected inflation and wage growth figures in December, economists now expect the Bank of England (BoE) to cut interest rates faster and further than previously anticipated. Economists predict between 100bps – 125bps of rate cuts from the BoE, starting in May or June, depending on the forecast house. However, many forecasters have been changing views on a frequent basis, making it tricky to grasp sentiment. Less than a month ago, the most economists expected were two rate cuts in 2024.
However, following the positive US jobs report on Friday, some of this optimism surrounding interest rate cuts has reduced. 216k jobs were added to the US labour market in December 2023, significantly above expectations of 170k. Since the data release, interest rate futures indicate less chance of a March rate reduction from the US Federal Reserve. Rightly or wrongly, the UK typically follows the US. Money markets are now pricing in five 25bps rate cuts from the BoE in 2024 starting in June, compared to the six 25bps rate cuts beginning in May, priced last week.
MANUFACTURERS OPTIMISTIC ON THE UK
The latest annual survey conducted by industry body Make UK and PWC of 205 manufacturers found that 53% of respondents expected the UK to be a competitive manufacturing location in 2024, up from 31% a year ago, due to a much calmer financial environment. 25% of companies surveyed anticipated the UK to be more competitive than Germany, France, Spain and Italy, outweighing those who thought the opposite. The survey found costs, supply chain disruption, and access to skilled labour to be the sector's biggest risks. While these risks are not unique to the UK, it has faced higher costs on the sharper end of the spectrum. Amongst other things, elevated manufacturing costs have had implications for the supply of commercial real estate. There is an implied supply shortfall of 5.85m sq ft of London office space between 2024 and 2026, compared to trend take-up levels. We're already seeing that a reduced level of supply has been supportive of rental growth and pricing of prime London offices.
2024: A POLITICAL BONANZA
More than 40 countries are holding national elections in 2024. Alongside macroeconomic implications, these elections will be pivotal for ESG-related policy setting. The UK general election is yet to be announced. Still, we have seen Sunak's net zero policy shift following the Uxbridge by-election and talk of Labour's £28bn green pledge. In the lead-up to any election, we will get more clarity on each party's policies. However, there remains a clear direction from the private sector. Our analysis shows growing demand for sustainable offices, and whilst the supply is increasing, it is not matching the pace, creating an imbalance and resulting in a rental and sales premium.
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