• The UK fell into recession in the fourth quarter, but a return to growth may already be underway.
  • The US economy remains robust as debate continues over the timing of potential rate cuts.
  • The euro area economy remained soft but avoided falling into recession in the fourth quarter.
  • Further price falls in China suggest more policy support may be required to stimulate growth. 
A mixed economic picture continues to develop across global markets, throwing into question the timing of potential interest-rate cuts by policymakers.

In the UK, the economy slipped into recession1 at the end of 2023 and in the euro area, growth remains near zero. In the US, however, consumer spending and wage growth remain robust.

Still-strong growth in the US could pose a risk to the progress made in the fight against inflation.

United States

Recent growth and labour-market data suggest the US economy remains robust, as debate continues over the timing of potential interest-rate cuts.

The US economy produced 353,000 jobs in January, nearly double estimates, and wage growth, on an annual basis, has topped 4% for the last three months. Such strength isn’t immediately concerning, though the risk of reflation (where inflation starts to rise again) could increase if wage growth doesn’t moderate by the second half of the year.

At its January meeting, the US Federal Reserve (Fed), the central bank, held its target interest rate in a range of 5.25%–5.5%. The Fed emphasised its need to see inflation moving sustainably toward 2% ‒ effectively removing any chance of a March rate cut.

The latest inflation data came in stronger than expected. Core inflation, which excludes volatile food and energy prices2, rose by 0.4% in January, the largest monthly gain in eight months. Core inflation in the 12 months to January was 3.9%.

The US economy increased by 3.3%, on an annual basis, in the fourth quarter of 2023. For 2024, we expect the economy to grow in a range of 0.25%–0.75%.

Euro area

We have revised our outlook for the European Central Bank’s (ECB’s) interest rates, amid moderating inflation and wage growth. We foresee the ECB cutting its key interest rate by a total of 1-1.5 percentage points in 2024, to a range of 2.5%–3% by the end of the year. That’s greater than the 0.75 percentage points of rate cuts we foresaw in our Vanguard economic and market outlook for 2024.

Headline inflation inched down to 2.8% in the 12 months to January, while core inflation, which excludes volatile food, energy, alcohol and tobacco prices, was down slightly in the 12 months to January, at 3.3%, compared with 3.4% in the 12 months to December.

Data suggest that the euro area economy remained soft in the fourth quarter but avoided falling into recession. We continue to expect that any recession will be mild.

United Kingdom

The UK economy fell into recession in the second half of 2023, official figures confirmed last week. The economy fell by 0.3% in the fourth quarter, marking the second consecutive quarter of negative growth, after a fall of 0.1% in the previous three months.

However, signs of growth improving in the first quarter are appearing ‒ which could mean the recession is short-lived. For all of 2024, we foresee economic growth remaining below trend and in a range of 0.5%–1% due to the effects of restrictive policies by the government and Bank of England (BoE).

The Bank held interest rates steady at 5.25% at its last meeting on 1 February and appeared to push back on market expectations that it will begin cutting interest rates as early as June. We foresee a first rate cut in August, with total cuts of 1 percentage point in 2024.

Headline inflation held steady at 4.0% for the 12 months to January, the same as for the 12 months to December, according to the latest report from the Office for National Statistics (ONS). Core inflation ‒ which excludes volatile food, energy, alcohol and tobacco prices ‒ rose 5.1% in the 12 months to January, the same as for the 12 months to December. We have reduced our year-end forecast for 2024 core inflation from 2.8% to 2.6%.


Data suggest that weak economic growth has carried into the new year in China. The government has responded with broad stimulus measures to support the economy, including support for China’s ailing housing and equity markets. However, we don’t anticipate large-scale stimulus as was introduced in China during the global financial crisis.

With economic growth below its potential, and continued deflationary pressure from falling prices, more concrete and decisive policy support may be needed for China to achieve its anticipated growth target of “around 5%”.

The points above represent the house view of the Vanguard Investment Strategy Group’s (ISG’s) global economics and markets team as at 15 February 2024.


A recession is typically defined as two consecutive quarters of negative growth.

As measured by the Consumer Price Index (CPI).

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