Look Ahead

The high level of fund outflows seen in 2023 softened in the first quarter of 2024 as markets rallied on the expectation that inflation was coming under control and that Central Banks might cut rates as early as March. Whilst the expectation of Q1 rate cuts proved to be optimistic, markets have not reacted overly negatively.

The macro-economic outlook remains hard to predict as a series of global elections will bring new policy makers into power and with them, new fiscal policies. Whilst the UK has returned to growth in the first quarter of 2024, 0.6% is weak and productivity challenges remain with little headroom for fiscal stimulus whichever party wins the general election.

Persistent inflation in the US, has pushed back expectations for near term interest rate cuts from the Federal Reserve. Expectations for the Federal Reserve cuts in 2024 have gone from 5 or 6 cuts of 0.25% to just one or two, towards the end of the year. Persistent inflation in the US is also a symptom of relatively strong economic growth compared with other developed markets and we have seen inflows to North American equity funds at the start of the year. The US elections will colour investor attitudes, and a new president will bring policy changes.

If the Republicans win, however, it will be hard to repeal the recent fiscal stimulus provided by the Inflation Reduction Act, which has partly been designed to attract jobs to the US and has offered attractive incentives to operate from the US, particularly in sustainable industries.

In the UK, the latest inflation figures for May 2024 are 2.3%, which is close to the Bank of England’s 2% target. The Bank may move to cut rates before the Federal Reserve but much of the recent fall in inflation has been driven by falling energy costs, while services inflation remains sticky at 5.9%. Higher services inflation is an indicator of domestic inflationary pressures as salary increases at UK firms contribute to elevated levels, whereas energy and food prices are more impacted by global factors. With the calling of a snap general election in July, the chances of a rate cut at the June meeting have become more remote, making an August rate cut likely.

The prospect of political change, coupled with geo-political tensions in the Middle East, Russia/Ukraine and in China and a sustained period of higher interest rates mean that we think that investors will remain cautious in 2024. Inflows to fixed income funds will continue through the year, a symptom of continued caution and cheap investment grade corporate bonds, where prices will rise on the bank of interest rate cuts that seem certain at some point this year. Equity sales may be more volatile given the macro-economic climate.

Nevertheless, our recent investor polling shows that 77% of investors take a long-term view of investing, irrespective of the rise and fall of markets and 50% of investors cited generating a return better than cash as the most important reason for investing in a stocks and shares ISA. Over five years or more, investments in equities and bonds have traditionally outperformed cash, and with inflation approaching the Bank’s target of 2%, we can hope that investor confidence continues to recover improving net flows to funds.

Industry Data Expert Pages

The IA annual survey provides a snapshot of the UK industry in a European and wider international context. It contains hundreds of data points on trends in how firms invest for their customers and how the industry is evolving.

Monthly Statistics The sector sales tables below show industry-wide data. They are provided in a downloadable Excel format.

ECHOweb Available to full members only, enables members to carry out their own detailed analysis of industry trends, including their market share and ranking across the IA sectors and distribution channels.

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The IA statistics team.