DJ: The market action in the past few weeks has been focused on interest rate cuts. At the same time, there is concern still about a potential recession in the UK. Of these two big, perhaps conflicting, narratives, which is going to have the biggest impact in 2024?
ST: Inflation and interest rate expectations are key. Inflation has continued to fall, and Office for Budget Responsibility (OBR) forecasts are looking for it to average 2.8 per cent in the fourth quarter of 2024. At the same time, UK gilt yields have eased back. If both inflation and bond yields continue to trend down, and I think they will, it eases margin pressure on corporates, and it means real wages rise for employees in what is still a tight labour market characterised by skill shortages in key areas. It also means that the UK housing market and sectors that feed off it are likely to outperform as workers have more cash in their pockets. Of course, the elephant in the room that could derail this narrative is the potential for the Israel conflict or Russia and Ukraine to lead to a spike in energy prices. But as regards the Russia conflict, that just hasn't happened in the past nine months.