Jeff Lewis, director at RobMac, gives his regular view and assessment of the economic outlook for the next few months taking into consideration the UK election and before the election in the United States.
The US labour market demand continues to support economic growth however solid payrolls lower the probability of material US Fed interest rate cut in 2024 is perhaps not as likely as it once was a few months ago.
Aside from new jobs being created in the US economy, workers have also benefited from rising average hourly earnings wage rates. Taken together, nominal labour income (defined as the product of employment, wages rates and hours worked) expanded by 5.1% from a year ago. This shows workers are earning more than the current CPI inflation rate of around 3% to drive consumption growth.
Economic growth and the outlook is improving in Europe and indeed here in the UK as well , its expected that interest rates will begin to reduce which helps economic activity and is positive for equity markets.
Firms can be adept at increasing profit margins using so-called “shrinkflation”, where the package size for goods is reduced, but prices charged stay the same to boost profitability. I think we’ve all seen that in action with a reduced size of a Mars Bar or Curly Wurly over the years .
Moreover, with the advance of “Big Data”, often collected covertly via apps, corporate pricing power has been supercharged. Using technological innovation (e.g. cloud computing, algorithms and artificial intelligence), firms have been able to collect personal information to estimate when a consumer may be looking to buy something and at what price they would be willing to pay. For instance, travel agents can utilise purchase history to set optimal hotel pricing for individual customers at the high end.
What happens if Trump or Harris wins in November is a debatable point but history would suggest that markets tend to perform the same whichever leader is in power over the longer term.
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