Anyone looking for traditional festive cheer at the end of 2024 would have been well advised not to look too closely at the economic figures released during December. UK economic growth was reported as being slightly weaker than expected, falling by 0.1% in October and the estimates for the second and third calendar quarter were both revised down by 0.1% to 0.4% and 0.0% respectively. Despite the slow / no growth environment, inflation is proving to be stubbornly resilient, with a rise in the CPI from 2.3% to 2.6% reported for November. This is the highest level for 8 months.
In the Bank of England’s thinking, concerns about the inflationary background outweigh the desire to restore some growth to the economy and, as a result, there was no change to the base interest rate following the Monetary Policy Committee’s December meeting.
If interest rates are to be at higher levels for longer, this is seen as being negative for any cyclical improvement in the UK. The share prices of some of the more economically sensitive companies fell as a consequence, which was adverse for portfolio performance. For example, during the month of December, the share prices of Ibstock and Forterra, the brick manufacturers and therefore intimately linked to construction activity, fell by 5.6% and 9.4% respectively.
For a variety of reasons, about 45 companies have delisted from London in 2024 following mergers or acquisitions. This arguably reflects the paradox that while valuations for many medium and smaller-sized UK companies are low and therefore should be attractive to retail and institutional investors, yet many are selling their holdings and reinvesting the proceeds into index and global funds, which trade at higher valuations and therefore should be less attractive. Corporate buyers or private equity investors are more interested in value and future returns, rather than being driven by this momentum effect, and have been stepping into the UK stock market to take advantage. This is the highest number of firms to leave the market since 2010.
Perhaps reinforcing the fact that speculators (guessing about future values), rather than investors (calculating tangible returns), are the driving force in some markets, at least for now, Bitcoin traded above $100,000 in December. For an asset with little or no tangible value and whose use can be replicated more quickly, cheaply and easily by real currency, that is quite an achievement.
Investment risks
The value of your investments and any income from them can go down as well as up and you may not get back the original amount invested. Gearing is used for investment purposes to obtain, increase or reduce exposure to an asset, index or investment. The use of gearing can enhance returns to investors in a rising market, but if the market falls the losses may be greater.
Issued by Columbia Threadneedle Management Limited and approved for distribution 27/01/2025.
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