Spotlight: UK vs US Inflation

Inflation has been the hot topic over the past few years, as rates of inflation surged across the globe to double-digit figures in 2022 and led to hefty price increases that we’ve all noticed in our day-to-day lives. Thankfully, for those of us that live in the UK at least, it appears that the UK is making more rapid progress in curbing inflation compared to the US, as the UK’s headline inflation rate of 3.2% over the 12 months to March 2024 is now lower than the US headline inflation rate of 3.5% over the same period – the first time since early 2022 that this has been the case. Headline inflation is a measure of inflation within an economy that is based on a basket of goods and services including food and energy. Whilst it’s a slightly less rosy picture when factoring in much stronger US economic growth relative to the UK, the downwards trajectory of the rate of inflation is a positive one and one that should lead to real-world benefits for all of us as price increases slow. The chart below illustrates these points by showing headline inflation for the US and UK over the last 10 years (source FactSet).


Importantly, the outlook for inflation has a key influence on central bank interest rate levels. To help combat inflation over the past few years, central banks raised interest rates unanimously across the major economies. However, with the major economies now at different stages of their fight against inflation, it is likely that interest rates are going to be cut at different speeds across economies. Falling energy prices have been a key driver in the UK’s fight against inflation, following the significant energy price shock sparked by the Ukraine war in early 2022. Energy prices affect inflation by influencing the cost of production, which in turn impacts the prices of goods and services. As energy prices have fallen since the initial shock, the rate of inflation has decreased accordingly. UK inflation is projected to decline towards, or even below, the Bank of England’s 2% target rate for the remainder of the year. In contrast, the US did not experience the same energy price shock in early 2022 as the UK and therefore will not see as large a reduction in its rate of inflation.

The market consensus is that the UK is likely to cut interest rates more quickly than the US at present, on the expectation of UK inflation continuing to fall more quickly than US inflation, with a first interest rate cut in August being the most probable. In the US, markets are favouring a first rate cut to occur in September, albeit continued strong economic data may put this date in jeopardy. The size and pace of interest rate cuts will be important to asset returns across both equities and bonds and therefore investors have seen significant shifts in asset prices over the recent months as these projections around the trajectory of interest rates have developed. As ever, market dynamics can change rapidly and investor predictions are often wrong, so we maintain that a diversified portfolio that invests across multiple geographies and limits concentration risk is the best approach to delivering positive investment outcomes.

The Noise​

  • The US economy grew at its slowest pace in almost two years in the first quarter of 2024, interrupting a run of strong demand and muted price pressures that had fuelled soft landing optimism. GDP increased at a 1.6% annualised rate, materially below consensus estimates of 2.5% growth. The US economy’s main growth engine, personal spending, rose at a slower-than-forecast 2.5% rate, while a surge in imports detracted from growth. The figures represent a notable loss of momentum at the start of 2024, after the economy ended 2023 surprisingly strongly. The Federal Reserve will likely see the GDP report as solid, as they prepare for next week’s policy meeting, where they are expected to leave interest rates unchanged.

  • Anglo American turned down a £31 billion takeover offer from rival mining company BHP Group, stating that the bid greatly under-valued the London-listed miner and its future prospects. BHP, the world’s largest listed mining company offered Anglo’s shareholders £25.08 per share, a 31% premium to the market close on Wednesday, which sent shares up 16% on Thursday. The move to consolidate is driven by a scramble for copper and other metals central to the world’s clean energy shift. Consensus is now growing that BHP will have to sweeten its offer to get the deal done, though antitrust concerns surrounding a potential deal are growing.

  • The European Parliament gave the green light to a proposed legislation aiming to prohibit certain single-use plastic packaging this week. Items such as mini shampoo bottles found in hotels and thin plastic bags used for groceries will be banned, in an effort to curb the growing issue of packaging waste. The policy, which still needs final formal approval from EU countries, would bring sweeping changes to how food and drinks companies, restaurants, and online retailers package their goods. The EU’s annual packaging waste grew by around 25% from 2009 to 2021, and recycling rates have not been keeping up with this growth. Some industry groups however are concerned that the law leaves too much wiggle room for EU countries to decide how they meet the targets set by the law, risking a complicated mix of different approaches across the EU.

The Numbers

GBP Performance to 25/04/2024

Equity GBP Total Return

1 Week








MSCI Europe






MSCI Japan



MSCI Asia Pacific ex Japan



MSCI Emerging Market






Fixed Income GBP Total Return


UK Government



Global Aggregate GBP Hedged



Global Treasury GBP Hedged



Global IG GBP Hedged



Global High Yield GBP Hedged



Currency moves












Commodities GBP return









Source: Bloomberg, data as at 25/04/2024

The Nuance

It has been a busy week for US markets, as all eyes have been focused on the quarterly results of many of the world’s biggest companies. Four of the so-called Magnificent Seven stocks, Tesla, Meta Platforms, Alphabet, and Microsoft provided updates on their performance through the quarter to the end of March, with AI (artificial intelligence) the key theme.

Tesla, which missed expectations on many financial metrics, saw its share price rise following Elon Musk’s bullish comments on the companies upcoming prospects. He made clear bigger ambitions, highlighting Tesla’s AI credentials and plans for self-driving cars. Musk also communicated the decision to bring forward the launch of new models. This came despite the company suffering from falling demand and competition from cheaper Chinese imports.

Meta Platforms, the parent company of social media companies such as Facebook, Instagram and WhatsApp, showed robust results. Though growth in revenue, operating margin, and daily active users were above estimates, this was not enough to stop the share price reacting negatively. Comments from CEO Mark Zuckerberg indicated a new investment cycle to capitalise on its opportunity in AI is required, yet Meta is still some years away from material AI associated revenues. While negative in the short-term, this is straight from the Facebook playbook of investing first, building massive scale and then monetising later.

While Meta’s earnings poured cold water over the technology sector, Microsoft and Alphabet have since followed with both strong results and encouraging updates on their respective AI initiatives. Microsoft has been infusing its entire product line with AI technology, taking advantage of its head start from its investment in OpenAI. That bet is now starting to pay off as seen by the broad acceleration of growth across virtually its entire suite of offerings. Alphabet continues to show time again that it is the dominant player in the global search market via its subsidiary Google. Its advancements in generative AI are also showing early returns in the form of improved engagement and advertise performance, leveraging its market leading search position.

Taking all of these results together, it is clear that cloud computing (the provision of IT infrastructure via the internet) is benefitting by increased AI-related spending, as it drives an inflection in the transition away from on-premise computing. Alongside AI, Cloud remains one of the largest total addressable markets for technology companies, with the two dove-tailing nicely.



All investment views are presented for information only and are not a personal recommendation to buy or sell. Past performance is not a reliable indicator of future returns, investing involves risk and the value of investments, and the income from them, may fall as well as rise and are not guaranteed. Investors may not get back the original amount invested.

Any views expressed are based on information received from a variety of sources which we believe to be reliable, but are not guaranteed as to accuracy or completeness by atomos. Any expressions of opinion are subject to change without notice.

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