In our Market Monday insights, Prosperity Investment Management examines the latest developments across the globe's biggest financial markets - providing you with all the latest information you need to know.

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IMF chief says global economic outlook ‘less bleak’ than feared

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Prospects for the global economy have brightened amid signs that inflation is retreating from its four-decade high, the head of the International Monetary Fund has said.

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Speaking at the closing session of the World Economic Forum in Davos, Kristalina Georgieva said growth prospects had picked up in recent months but warned against overoptimism for the newly found outlook.

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Georgieva’s remarks followed the recent falls in annual inflation rates across the US, the eurozone and the UK. The IMF will release a variety of updated forecasts for the global economy at the end of the month and the IMF managing director hinted there would be a small change to her organisation’s current forecast of 2.7% growth for 2023.

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The current outlook has been brightened with the abandonment of the zero-Covid strategy in China, as the economic superpower looks to regain a footing. This has also been accompanied by strong labour markets that have boosted consumer spending.

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Inflation in the UK likely to fall alongside decreasing energy prices

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Inflation across the UK is predicted to fall rapidly over 2023 as energy prices decrease over the coming months.

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The pandemic and the cost of living crisis meant a UK recession is still on the cards.

A major component of inflation - how fast prices rise - has been soaring energy costs as economies recover from Covid and Russia's war in Ukraine pushes up oil and gas prices.

However, wholesale energy costs have been falling in recent weeks, and energy bills are more than previously forecast, meaning the path of inflation could be on a simpler trajectory.

Last October markets expected UK interest rates to peak as high as 6% - partly reflecting ongoing turmoil triggered by Liz Truss's brief stint as prime minister.

Financial markets now expect the Bank to raise its main interest rate to 4% from 3.5% on 2 February, although there could be a smaller quarter-point rate rise as various options are explored.

Bank of Japan defends yield curve control measures

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Bank of Japan Governor Haruhiko Kuroda on Friday defended the central bank’s decision to widen the trading band in its yield curve control program and committed to continuing the BOJ’s “extremely accommodative” expansionary monetary policy.

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Since the move, 10-year JGB benchmark yields have exceeded the upper ceiling several times.

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The BOJ on Wednesday opted to keep its ultra-dovish -0.1% interest rate unchanged and maintained its yield curve tolerance band. The decision prompted the Japanese yen to fall against the U.S. dollar and followed weeks of bond market turmoil during which yields jumped.

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It leaves the BOJ at odds with other major central banks, which have hiked interest rates in a bid to tackle rising inflationary pressure.

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Japan’s inflation rate jumped to a fresh 41-year high in December. The rate is still relatively low when compared to some other countries. 

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Nonetheless, the world’s third-largest economy reported core consumer prices rose to 4% on an annualised basis in the final month of last year, double the central bank’s target of 2%.

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