After a stellar rally in the final quarter of last year, markets are on the back foot in 2024 as hopes of a round of interest rate cuts early in the spring have faded following higher-than-expected inflation data in the UK and stronger retail sales figures in the US.

While economists had penciled in a 0.1% fall in the rate of UK inflation to 3.8% last month, the official data showed a 0.1% rise to 4% due to an increase in tobacco duty and alcohol prices.

As Morningstar market strategist Michael Field notes we are still a long way from the Bank’s 2% target and ‘although the fall so far has been impressive, the going may get tougher from here’.

December UK retail sales on the other hand were alarmingly weak, falling 3.2% – with non-food sales sliding 3.9%.

It is possible consumers blew their budgets early, taking advantage of the discounts on offer in the Black Friday sales and similar, or they may have preferred to spend money on ‘experiences’ like going to pub, the cinema or bowling.

No doubt the Bank of England will be weighing up all these possibilities ahead of its rate-setting meeting on 1 February, but while we can’t see interest rates moving higher neither can we imagine there is enough of a case for a cut just yet.

In the US, after December’s retail sales and consumer confidence surprised to the upside the Federal Reserve will be watching the personal income and spending data on 26 January along with the JOLTS (job openings and labour turnover) survey four days later when it considers whether to cut interest rates at its meeting.

US 10-year bond yields moved above 4% again last week while pricing in the swap market showed the chances of a cut in the Fed’s benchmark interest rate in March fell from 80% to below 60% for the first time in a month.

Fed officials have been pushing back against expectations of an imminent cut and the latest Beige Book cited bumper consumer spending as having propelled the economy in recent months.

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