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12 months to 31 December 2023


  • Stock markets up as inflation eases and central banks hit ‘pause’ on further interest rate rises.
  • UK base rate held at 5.25% (Sept) after 14 consecutive rises, from a low of 0.1% in March 2020.
  • Oil prices fall as weak global demand offsets supply issues.
  • All Virgin funds provided positive returns in 2023, with our Adventurous approach (Growth Fund 3) leading the way with a return of 11%.

Inflation and interest rate pressures start to ease

The annual rate of inflation in the UK fell to 3.9% for the 12 months to end November, which was a bigger fall than expected and closer to the Bank of England’s 2% target. Turn back the clocks a year, and the annualised rate was 10.7%.

Inflation has also been falling in the US and Europe. It doesn’t mean that, globally, prices are lower, just that the rate that prices have been rising has slowed. The shock to food prices caused by the conflict in Ukraine hasn’t gone away but the situation has stabilised.

Central banks around the world raised interest rates to curb inflation. But now, both in the US and the UK, rate rises have paused and the next move is expected to be down. This could be in the spring in the US and shortly afterwards in the UK, assuming no further inflationary shocks. Although any reduction in rates is likely to be gradual and it’s unlikely we’ll see a return of cheap money (UK rates were cut to 0.1% in reaction to Covid). That’s unless something bad happens, of course, such as a deep recession or another pandemic.

Lower oil prices

A big driver of inflation has been oil and gas prices following the breakout of war in Ukraine. The price of a barrel of oil hit $140 in early 2022, fell to just over $70 in March and rose again to $100 by Sept 2023. Since then, concerns over global demand caused prices to fall back once more to just under $80 by the end of the year.

Lower oil prices are generally good for corporate profitability and thus stock markets. However, some firms and countries benefit from higher oil prices. OPEC, led by Saudi Arabia (one of the world’s bigger exporters), has sought to restrict supply to maintain or push up prices further. These supply restrictions have been offset recently by the less-than-rosy global economic growth picture.

Share and Bond markets

While the outlook for economic growth remains subdued, the expectation of lower interest rates in the months and years ahead has pushed up the value of both shares and bonds, particularly in the last two months of the year. Also adding to the positive vibe was US corporate profits proving resilient to high borrowing costs and low growth, with the third quarter results surprisingly close to an all-time high.

Strong returns from US shares (+26% in USD, +19% when converted into GBP) helped drive global share markets higher (+15% MSCI All Countries World Index in GBP). UK shares (FTSE All Share Index) were up a more modest 8% for the year. The rising value of sterling (particularly versus USD) reduces the value of overseas earnings of the large multinationals based in the UK. There was also concern that the UK might lag other regions in kick-starting its economy, with the IMF predicting the UK would have the lowest growth (0.6%) of all G7 nations in 2024.

We saw a strong finish to the year for bonds, in reaction to changing sentiment in relation to interest rates. Bonds lose value when interest rates rise, as the value of their fixed coupon payments becomes less attractive. Bonds had a tough time in 2022 but it looks like they’ve turned the corner. Across both government and corporate bonds, they returned 6% as measured by the Barclays Bloomberg Global Aggregate Index.

Within the sterling bond market, UK Government Bonds (‘Gilts’) were up 4% in aggregate, recovering earlier loses with a strong final quarter. Corporate bonds outperformed, up 8% for the year.

Virgin Money investment funds

Overall, 2023 was a good year for our investment funds, with positive returns ranging from 5.0% for our Climate Change Fund, to 11.0% for our ‘Adventurous’ fund, Growth Fund 3. Returns for our three growth funds were 7.5%, 9.5% and 11.0% in order of risk. Follow the links from our funds page to see the return for each of our funds over the last five years.

Remember, the value of investments can go up and down, so you may get back less money than you put in. Tax depends on your individual circumstances and the regulations may change in the future.