“Yield curve steepening is necessary for the profitability of financial institutions, credit flow and the ability of pension funds to meet their long-term obligations, and thus it is very desirable by central banks. This will probably happen naturally,” he writes.
Redwheel head of investment Arthur Grigoryants keeps his primary focus on the extent of the economic slowdown in the US and the severity of a recession in Europe.
“When combined with rising interest rates and a receding liquidity tide, challenging economic conditions could trigger significant bad loan and leverage issues, potentially impacting a wide range of asset classes,” he says.
More broadly, his outlook is more optimistic, however. “While certain segments of the equity market exhibit optimistic valuations, there remain numerous areas and sectors globally that offer attractive investment opportunities for long-term investors,” he says.
“Value stocks in developed markets, as well as broader emerging and frontier markets, present compelling prospects. Additionally, the focus on sustainability-related themes offers an interesting opportunity to further enhance investor returns.”
He adds: “The maturing interest rate cycle is expected to bring positive developments. It will provide investors with both the opportunity to earn decent returns on lower-risk assets and, importantly, introduce a degree of balance to their investment portfolios.”
Boost for pensions
When it comes to pensions, savers too could benefit from falling inflation in 2024 as their income rises.
The state pension will rise by 8.5 per cent in April 2024, the second-biggest percentage increase of the past 30 years. This will take the full state pension to £11,501 for those retiring from April 2016, and about £8,812 for those who retired before then.
There are unlikely to be any further changes to the state pension before the next general election, which could be as early as next year, or by January 2025 at the latest.
Defined contribution pensions, meanwhile, could start to benefit from reforms announced by the chancellor this summer.
The Mansion House reforms saw the UK’s largest DC pension schemes agree to commit 5 per cent of their default funds to unlisted equities.
Though not in full force until 2030, the aim of the reforms is to enable financial services to increase returns for pensioners, improve outcomes for investors and unlock capital for UK growth businesses.
The government estimates the move will provide an extra £1,000 a year for the average person who starts saving into their pension at age 18.
Interactive Investor head of pensions and savings Alice Guy says: “The hope is that over time, pension savers will see a slight improvement in investment performance as smaller companies tend to grow faster than established large companies.”
‘A year of two halves’
The housing market was stacked against many in 2023, not least first-time buyers, cash-strapped private renters, and anyone having to remortgage, including buy-to-let investors.
