Key Points

  • US economy remains resilient, suggesting rate cuts unlikely in 2024.
  • The euro area economy grew in the first quarter of 2024, signalling an end to the recession.
  • A strengthening of the UK economy has led Vanguard to raise its full-year growth forecast.
  • Mixed signals in China suggest the economic rebound in the first quarter of 2024 may not persist.

The ongoing resilience of the US economy, stronger momentum in the euro area and a rebound in the UK continue to raise questions about the path to rate cuts.

United States

We continue to think that the Federal Reserve (Fed), the US central bank, is unlikely to cut interest rates in 2024, reflecting the robustness of the economy. The Fed held interest rates in its target range of 5.25%-5.5% at its May meeting.

The Consumer Price Index (CPI), a key measure of inflation, rose 3.4% in the 12 months to April and 0.3% from March to April. Core inflation, which strips out volatile food and energy prices, remained high at 3.6% in the 12 months to April. The data provide further evidence that inflation isn’t yet on a sustainable path towards the Fed’s 2% inflation target.

US growth slowed to an annual rate of 1.6% in the first quarter of 2024, down from 3.4% in the previous quarter, according to the Bureau of Economic Analysis. However, underlying economic drivers such as consumer spending and business investment were strong during the period. We maintain our projection that the US economy will grow at a slightly above-trend rate of around 2% in 2024.

The labour market cooled slightly in April albeit with 175,000 new jobs created, indicating a still-healthy jobs market.

Euro area

Stronger economic growth, higher energy prices and expectations of no rate cuts in the US have led us to raise our year-end forecast for interest rates in the euro area. We think the European Central Bank (ECB) will cut interest rates to 3.25% by the end of 2024, compared with a previous forecast of 2.75%. The ECB held rates at 4% in April.

The euro area economy has shown signs of recovery from a brief downturn, with growth of 0.3% in the first quarter of 2024 compared with the previous quarter, signalling an end to the recession.

Headline inflation remained steady in the 12 months to April. Core inflation, which excludes volatile items like food and energy, slowed to 2.7% in the year to April from 2.9% in March. 

The unemployment rate held steady at a record low of 6.5% in March, but we believe the labour market is softer than the data suggest. 


Recent data showing a strengthening of the UK economy and a firming of inflation have led Vanguard to increase its outlook for 2024 growth from 0.3% to 0.7%. We have also raised our outlook for year-end core inflation from 2.6% to 2.8%.

We continue to believe that the Bank of England (BOE) will cut interest rates at its August meeting, but, amid the outlook for higher interest rates globally, we have scaled back our expectations for the pace of cuts this year. We expect two quarter-point cuts this year, taking the bank rate to 4.75% by year-end, and a further four quarter-point cuts to 3.75% by the end of 2025. 

The Office for National Statistics (ONS) confirmed that the UK economy has rebounded from a brief recession, with the economy growing by 0.6% in the first three months of 2024 after contracting in the second half of 2023. 

Headline inflation was 3.2% in the 12 months to March, a slight decrease from 3.4% in February, according to the ONS. Core inflation, which excludes volatile items such as food, energy, alcohol and tobacco, increased by 4.2% in the 12 months to March, down from 4.5% in February. 


Concerns about the resilience of China’s economic rebound remain, despite robust first-quarter economic growth of 5.3% relative to the same period in 2023. Other economic indicators suggest potential challenges ahead. 

A downturn in demand for credit underscores the fragility of China’s economic recovery, with weak private demand and ongoing pressures in the property sector.

Inflation data also reflect underlying economic strains. Consumer prices rose only slightly by 0.3% in the 12 months to April, up from an increase of 0.1% in the 12 months to March. 

The points above represent the house view of the Vanguard Investment Strategy Group’s (ISG’s) global economics and markets team as at 16 May 2024.

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