We expect the FTSE 100 to finish the year at 8,600 points, reflecting a compelling valuation story that's been brewing over the years. This creates an attractive case for value-oriented investors which should be further amplified by earnings growth across key sectors such as banks, housebuilders, and retail.

 

While domestic-focused sectors are positioned to benefit from an easing cost-of-living crisis, an economic slowdown in China casts a shadow over mining stocks and luxury goods. Meanwhile, the new Labour government's tax regime adds another layer of consideration, creating a nuanced but still positive outlook.

Our monetary policy forecast of a 4.75% Bank Rate by year-end represents a more conservative stance compared to market consensus. This view is anchored in the complex dynamics of the Monetary Policy Committee (MPC), where the hawkish bloc of Mann, Greene, and Pill continues to exercise significant influence.

 

While inflation shows signs of slowing, persistent wage pressures and energy price volatility continue to present upside risks. Paired with the uptick of inflation forecast in the medium term due to the higher cost of borrowing as a result of elevated gilt yields, and it's likely that the MPC will maintain a cautious approach.

We project a year-end CPI rate of 2.6%. While headline inflation has dipped below 2%, this represents more of a waypoint than a destination. The increase in the energy price cap in Q4 will push inflation up, though this should be partially offset by continuing disinflation in discretionary spending categories.

 

Nonetheless, the services sector remains key to the inflation outlook. With goods already in deflation territory for the most part, our analysis suggests a choppy but ultimately downward trajectory, provided the geopolitical environment doesn't get any more heated than it already is.

Our GDP growth forecast of 1.0% reflects a tale of two halves in 2024. While slightly below the Organisation for Economic Co-operation and Development's (OECD) and International Monetary Fund (IMF) estimates of 1.1%, this projection acknowledges both the economy's resilience and its vulnerabilities.

 

The first half of the year has demonstrated remarkable strength, particularly in services, but we anticipate a more challenging second half as Britons adjust to post-election fiscal shocks. However, this slowdown should be cushioned by a rebound in manufacturing and construction activity.

Our projected 3.0% house price growth running counter to the more pessimistic forecasts from major institutions. This optimism is built on several converging factors — improvements in mortgage affordability, the traditional post-election bounce in activity, and the return of higher loan-to-value products.

 

Crucially, we're observing a shift among prospective buyers, who are increasingly accepting the 'new normal' of higher mortgage rates. Combined with positive real wage growth and stable house price-to-earnings ratios, the conditions are prime for price appreciation, with the potential to even exceed our base case.