From 2014 into 2015
As we enter 2015, it’s time to look back on the year gone by and start to plan for the year ahead.
Overall, it has to be said that 2014 was a good year for the economy. It started off well and ended better. A year ago, the recovery was starting to build but there were doubts about whether it would last. It did – and growth is expected to continue in 2015, albeit slightly more slowly, with the Office for Budgetary Responsibility (OBR) forecasting 2.4% growth and unemployment falling further to 5.4%.
Major progress was certainly made in the job market in 2014, with the latest figures showing an annual rise of 588,000 people in work, 93% of them in full-time roles. Unemployment has dropped by more than 450,000.
Inflation in November was also down to 1% and is likely to go lower, whilst the drop in oil prices in the final few months of the year provided the equivalent of a big tax cut to consumers.
All this good economic news did not filter through to the markets though. Despite most experts predicting a good year for the UK stock markets, the FTSE 100 ended the year just over 2.7% down on 2013. So despite a five year bull market, investors remained cautious, with economic and political events around the world creating a general sense of nervousness. So as we enter 2015, with share prices not looking particularly expensive, there are investment opportunities out there.
There were plenty of differing views on interest rates throughout 2014, particularly after the Bank governor’s Mansion House speech in June, which appeared to point to a rate rise before the end of 2014. Things moved on from that with markets in the autumn expecting a rate rise early in 2015. However, the consensus is now for the end of 2015 if not 2016. With low inflation, low wage growth and the Eurozone still in the doldrums, an early rate rise is unlikely. Obviously this will continue to impact upon income seekers.
Of course, low interest rates and low inflation tends to be good news for corporate bonds and even gilts, which did well in 2014, so this sector could do better than many would predict this year. Forecasters have incorrectly predicted that the bond market would fall in each of the last three years.
Around the world, the US economy is looking good, with strong growth plus low inflation, whilst the possibility of more quantitative easing (QE) in Japan plus even the introduction of full QE in the Eurozone could see a positive stimulus for equities and funds.
However, with oil prices still falling and with political uncertainties continuing in the Ukraine, Russia, the Middle East and Greece for example, markets are likely to see a good deal of volatility.
Closer to home, the May general election also adds major uncertainty, with the real prospect of no overall majority again, but this time with the added spice of UKIP and the SNP possibly holding the balance of power. This could see companies holding back on investment and could affect economic growth. However, it is unusual for election results to have a lasting effect on stock markets.
Taking all the above into account, most City experts are still predicting a good year for the markets, albeit one with significant periods of volatility. Welcome to 2015!