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12 months to 31 March 2024


  • UK inflation falls to 3.2% with 2% Bank of England (BoE) target in sight.
  • BoE holds interest rates at 5.25% but the odds of a reduction in June or August increase.
  • Share markets in buoyant mood as inflation eases and US tech firms continue to power ahead.
  • Bond markets flat in Q1 2024 with interest rate cuts largely priced in.
  • All Virgin Money funds positive over last 12 months, with returns ranging from 4% (Bond Fund) to 14% (Global Share and Growth Fund 3).

Inflation expected to hit 2% target by the Summer

The annual rate of inflation in the UK fell to 3.2% for the 12 months to end March 2024. Inflation is expected to hit the BoE’s 2% target by the end of Q2, aided by the latest reduction in the energy price cap.

Inflation at or close to target, combined with low economic growth (the UK technically entered a recession over the second half of last year), increases the chances that the BoE will start reducing interest rates, following either their June or August meeting. The UK economy ended 2023 just 1% bigger (by GDP) than in late 2019, with only Germany faring worse among the G7 nations.

The current base interest rate of 5.25% is ‘restrictive’, ie, it’s designed to slow economic growth in a bid to reduce inflation. How far the BoE will cut rates, and over what period, remains to be seen. But market perception is that rates would need to fall to between 3% and 3.5% to be considered ‘normal’ (neither ‘restrictive’ or ‘accommodative’ – accommodative being the technical term for monetary policy designed to boost economic growth).

Jeremy Hunt delivered the 2024 budget speech in early March. He had the tough job of continuing to distance the Conservative party from the ill-fated Truss/Kwarteng mini-budget at the back end of 2022, whilst trying to boost the Conservative party’s popularity by reducing the tax burden. He announced further reductions to National Insurance (NI), taking the rate down to 8% on Class 1 NI for employees. However, the freezing of income tax thresholds previously announced means the tax burden remains at or close to historic highs. With the general election expected to take place this autumn, the Labour party seek to consolidate their lead in the polls by attempting to reassure voters they won’t be reckless with the public’s finances, and that they’re the right choice to get the UK economy growing.

UK and US Shares markets at or close to all-time highs

The expectation that central banks around the world are on the verge of pivoting away from policies designed to rein in inflation, to policies that will stimulate economic growth, has helped drive equity and bond markets higher.

The FTSE 100 was trading in early April just below its all-time high of 8,047 achieved in February 2023, whilst the S&P 500 (a key measure of the US stock market) has repeatedly recorded new highs through the fourth quarter of 2023 and into this year.

A large proportion of the recent strong gains in the US stock market has come from seven high-profile technology companies, known as the ‘magnificent seven’. These tech firms (Microsoft, Amazon, Nvidia, Meta, Alphabet, Apple and Tesla) rose on average 112% in 2023. Part of the reason for their strong gains has been opportunities linked to artificial intelligence as the perceived next big technological breakthrough. Returns are starting to diverge, though, and only four of the seven stocks have outperformed the S&P 500, with Tesla down close to 30%, so far this year.

Bond Markets

Following a strong finish to last year for bonds, the first quarter of 2024 has been more subdued, particularly January and February, as hopes for an early (Q1) interest rate cut in the US fell by the wayside.

UK government bonds (‘gilts’) fell by 1.6% in Q1 2024, leaving returns flat for the 12 months to end March. More interest rate sensitive, longer maturity gilts (15 years plus) were down 3.6% in Q1 and 4.6% for the 12 months. Sterling corporate bonds have performed more strongly, up just over 6% for the year to end March. While lower interest rates will be supportive of gilts, the expectation is that issuance will need to increase (to support government spending plans and the rollover of maturing bonds) from £237 billion to £260 billion in the 2024/25 financial year, the second heaviest year of issuance after the Covid impacted 2020/21 financial year. If supply exceeds demand, then prices will fall, all else being equal, so it is important for bond markets that interest rates do fall to protect capital values.

Most of our funds invest globally rather than in just the UK, and global bond markets in aggregate (Bloomberg Global Aggregate Bond Index) were flat in Q1, but up 3.5% for the year to end March. The expectation of interest rate cuts was largely priced into markets in 2023, with markets treading water so far in 2024, waiting on further comment from the major central banks.

Conflict remains a key risk

As we leave the first quarter of 2024, Russia is still at war with Ukraine, and Israel is coming under increasing international pressure to cease or at least scale back its offensive within Gaza. Attacks on shipping in the Red Sea has led to container ships being rerouted around South Africa, which adds time and cost.

The major (known) risk facing investment markets is escalation of the current global conflicts which stalls the nascent global economic recovery and/or drives up inflation once more. There is also political uncertainty in both the UK and US, with the potential for new administrations and policies both sides of the Atlantic. The most notable impact is likely to be in the US and what it would mean for the conflicts we see around the world should Trump return to office.

Virgin Money investment funds

The last 12 months have seen positive returns for all VM investment funds, ranging from 4% on the Bond Fund to 14% for the Global Share Fund. Returns for our three diversified growth funds were 7%, 11% and 14%, in order of risk profile, and in keeping with equities outperforming bonds. You can see the return for each of our funds over the last five years on each fund’s specific web page.

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.