Key points

  • US economic resilience has led Vanguard to revise up its expectations for growth in 2024, although we think it’s possible interest rate cuts may not come this year.
  • Early signs suggest the euro area economy is on the road to recovery.
  • Vanguard has lowered its expectations for UK growth in 2024. 

Central banks across key developed markets kept interest rates on hold in March – for different reasons - as policymakers continue to try to rein in inflation.

United States

Despite the US central bank’s best efforts to cool the US economy by keeping interest rates elevated, the US economy remains resilient. This has led Vanguard to revise up its full-year economic growth forecasts and we believe the US central bank will be even more cautious about cutting interest rates—and may not cut rates at all in 2024.

At its March meeting, the Federal Reserve (Fed) left its main interest target unchanged in a range of 5.25%–5.5% following higher-than-expected inflation readings this year.

The US economy increased by 3.2%, on an annual basis, in the fourth quarter of 2023, down from 4.9% in the third quarter. Vanguard expects US economic growth of around 2% in 2024, higher than our initial estimate of around 0.5%.

Core inflation, which excludes volatile food and energy prices, edged down to 2.8%1 in the 12 months to January from 2.9% in December. While inflation is trending towards the Fed’s 2% target, we continue to believe that sticky services-related inflation will take time to come down. Vanguard has increased its 2024 full-year forecast for core US core inflation from 2.3% to 2.6%.

Euro area

The euro area’s economy is showing tentative signs of a recovery, having narrowly missed a recession2 in 2023. Activity picked up slightly in the first quarter of 2024 as real incomes rose (due to falling inflation) and the availability of credit improved.

Euro area growth held steady in the fourth quarter of 2023 having contracted by 0.1% the prior quarter. That means the euro area avoided a technical recession. We continue to expect 2024 growth to come in between 0.5%–1%, weighed down by high interest rates and the lingering effects of Europe’s energy crisis on industry.

The European Central Bank (ECB) held its main interest rate steady at 4% in March. The ECB president, Christine Lagarde,  suggested that an initial rate cut could come in June, which is in line with Vanguard expectations—and we foresee 0.25 percentage point cuts at each of the ECB’s final five 2024 policy meetings. We recently lowered our 2024 year-end ECB rate forecast from 3.25% to a range of 2.5%–3%.

Headline inflation moderated to 2.6% in the 12 months to February, down from 2.8% in January. Core inflation, which excludes volatile food, energy, alcohol and tobacco prices, slowed to 3.1% in the 12 months to February from 3.3% in January. Vanguard expects headline inflation to fall to 2% by September 2024 and core inflation to reach that target by December.

The unemployment rate fell to 6.4% in January from 6.5% in January. We believe the labour market is softer than the unemployment rate would suggest and have downgraded our 2024 year-end unemployment rate forecast to 6.5% from a range of 7%-7.5%. 

United Kingdom

With the UK economy having fallen into recession in late 2023, we have reduced our forecast for 2024 full-year growth to 0.3% from a range of 0.5%–1%. 

The UK economy contracted by 0.3% in the fourth quarter of 2023 (a second consecutive quarter of contraction) having decreased by 0.1% in the third quarter. Monthly figures suggest the recession could be short, however, as the economy grew by 0.2% in January, driven by a 0.2% increase in output from the services sector.

The Bank of England (BOE) held the bank rate steady at 5.25% for a fifth consecutive meeting in March. The UK central bank indicated rate cuts are not dependent on inflation hitting the bank’s 2% target and that evidence of progress in bringing inflation down, as well as slowing wage growth and a loosening jobs market, could support a decision to cut interest rates. We expect a first interest rate cut in August, and a total of 1 percentage point of cuts in 2024.

Headline inflation rose 3.4% in the 12 months to February—a slower pace of increase than January’s 4.0% gain and the smallest annual gain since September 2021. Core inflation, which excludes volatile food, energy, alcohol and tobacco prices, rose by 4.5% in the 12 months to February, less than January’s 5.1% pace. A reduction in the maximum price that energy suppliers can charge for a unit of energy should support falling headline inflation. We foresee headline inflation falling to just below 2% and core inflation falling to around 2.6% by the end of 2024.

The unemployment rate rose to 3.9% in the November 2023–February 2024 period, marginally higher than in the preceding rolling three-month period. As with the euro area, we believe the UK labour market is softer than the unemployment rate would suggest. As such, we’ve lowered our year-end 2024 UK unemployment rate forecast from a range of 4.5%–5% to a range of 4%–4.5%.


Vanguard believes that meeting China’s 5% growth target3 will require more decisive and timely government stimulus, given persistent economic challenges stemming from an extended property downturn. 

The 5.2% growth achieved in 2023 came on the heels of subdued activity in a 2022, which was marked by lengthy Covid-19 lockdowns. Achieving the 5% target in 2024 will be more difficult because activity is starting from a higher base.

Consumer prices rose in the 12 months to February by 0.7% compared with January and on a month-on-month basis. We don’t believe that February’s higher prices spell the end for China’s recent dip into deflation. Rather, we attribute the higher prices in February to easy year-earlier comparisons. Lunar New Year holidays occurred in February this year; in 2023, they occurred in January.

We’ve lowered our forecast for 2024 full-year core inflation to 1% from a range of 1%–1.5%, and for headline inflation to below 1% from a range of 1.5%–2%, well below the central bank’s 3% inflation target.


1 As measured by the Personal Consumption Expenditures index.

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

3 The target was announced at the National People’s Congress in early March.

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