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April proved to be a tale of mixed fortunes for investment markets, as conflicting economic data changed the outlook for developed economies. The US, widely expected to be the first to cut interest rates, suffered the sharpest adjustment of expectations. Company valuations followed suit, giving back some of the strong gains made in the first quarter of the year. The star of the show was the UK.

Although initially considered one of the laggards in tackling inflation, the Bank of England (BoE) suggested it could be one of the first central banks to cut interest rates now that inflation was much closer to target. This buoyed investor sentiment markedly in the UK, with company valuations reaching new heights and breaking valuation levels many thought unbreakable.

Improved data suggests the UK economy is turning a corner

  • The UK’s annual consumer price index (CPI) inflation rate fell in March for a second consecutive month, dropping from 3.4% in February to 3.2% – the lowest level since September 2021 – easing pressure on households amid the cost-of-living crisis.
  • Core CPI – which excludes the more volatile energy, food, alcohol, and tobacco components – fell to 4.2% in the 12 months to March 2024, from 4.5% in February. The main concern for the BoE is still services inflation, which eased by 0.1% to 6.0% over the month.
  • The UK economy further distanced itself from last year’s technical recession. The Office for National Statistics announced gross domestic product (GDP) expanded by 0.1% in February.
  • The Confederation of British Industry (CBI) confirmed business optimism picked up to the highest level since mid-2021, rising from -3% in January to +9% in April. Manufacturers expect output to rise over the next three months, which could further build confidence.
  • The number of registered company insolvencies in England and Wales dropped to 1,815 in March, 17% lower than in February 2023. This was a surprise to many economists, given the pressures companies are facing from weak economic growth and higher interest rates.

Mixed data casts a shadow over the US economy

  • In the US, the personal consumption expenditure (PCE) rate rose to 2.7% in March, up from 2.5% in February, and well above the US Federal Reserve’s (Fed) 2% target. This metric is the Fed’s preferred inflation measure and caused a temporary scare in financial markets as US investors once again readjusted their expectations on interest rate cuts.
  • US GDP expanded at an annual rate of 1.6% in the first quarter of 2024, meaning it only expanded by 0.4% in the quarter. This was well below analyst forecasts and represented a notable slowdown from the fourth quarter of 2023, when GDP increased at 3.4% per year, causing some concern on the outlook for the US economy.
  • More positively, wage growth slowed in April, which was good news for the Fed in its battle against inflation. According to the US Department of Labor, average hourly earnings growth slowed to +0.2% in April, down from +0.3% in March. On an annual basis, earnings rose by 3.9%, down from 4%.
  • April’s non-farm payroll data showed US employment increased by 175k in April, less than the 243k expected and another factor helping to cool inflation. It marked a notable decrease against March, when an upwardly revised 315k jobs were created.

Eurozone moves closer to first interest rate cut after more supportive data

  • The Eurozone also had its share of economic good news. Although Eurozone CPI was unchanged at 2.4% over the 12 months to April, core inflation eased to 2.9%. Breaking inflation down by sector, services – the more stubborn component of inflation – slowed from 4% in March to 3.7%.
  • The Eurozone’s shallow recession was announced as officially over as GDP across the bloc expanded by 0.3% in January-March, confirmed by the latest reading from Eurostat.
  • Preliminary ‘flash’ Purchasing Managers’ Indices (PMI) for April added to signs that the Eurozone economy was bottoming out, with the Composite index improving to 51.4 to reach an 11-month high. The upturn was mostly driven by a bounce in services. Germany’s economic upturn seems particularly strong, with services showing a strong recovery and manufacturing improving for the first time since the beginning of the year.
  • German business sentiment also improved by more than expected in April. The Ifo Institute’s Business Climate index rose from 87.9 in March to 89.4, beating analyst expectations of an 88.8 reading. It stated that Germany’s economic situation was stabilising, led by service industries. This was important news for an economy that has struggled in recent years.


After a strong first quarter, concerns over a higher-for-longer interest rate environment in the US, and risk aversion due to increased tensions in the Middle East, led to some profit taking within equity markets during April. Many US indices finished the month notably lower, despite broadly positive corporate earnings releases and continued positive news surrounding artificial intelligence (AI). Many of the UK’s large-cap companies went from strength to strength, boosted by a weaker pound against the dollar. This has helped improve the margins for many of the exporting companies at the top end of the market capitalisation spectrum. Many investors are hoping the UK has its moment in the sun, as UK stocks are trading close to record discounts relative to their US peers as a result of years of underperformance.

Unsurprisingly, it was a difficult month for bond markets, as investors came to terms with US rates staying higher. At the start of April, the US ten-year government bond price fell back with the yield rising from 4.2% to a year-to-date peak of 4.7% before finishing the month at 4.68%. UK government bonds were in demand at the end of the month, after the issue of a £4bn tranche of five-year bonds was more than three times oversubscribed. The yield of 4.29% was obviously tempting for investors with UK inflation more under control and the potential for a summer rate cut by the BoE.