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In Britain, 13 years of Conservative government will come to an end. The US will face its most divisive, and potentially destabilising presidential election in decades. Markets will find out whether central banks have managed to control inflation and normalise interest rates, or whether a replay of the monetary turmoil of the 1970s and 1980s is on the horizon.
Every new year is significant for the global economy, yet 2024 promises to be far more momentous than most years and it will have a huge impact on finance and the payments industry.
Well before it has started, we already have a fair idea of the big events that will shape the next 12 months. The UK faces a general election at some point before December 2024, and there can surely no longer be any doubt that the Labour Party will win that contest.
Britain has been through five prime ministers over the last 13 years, but this will be the first change of the party in power since 2010. On the other side of the Atlantic, Americans will face a rerun of the 2020 contest between Joe Biden and Donald Trump. Whoever wins, it will be a bitterly divisive contest, and a Trump second term with tariffs, trade wars and disengagement from policing the world could be a trigger for a full-blown crash.
Meanwhile, we will discover whether the central banks, and the Federal Reserve in particular, are still able to control prices. By the summer of 2024, if all goes according to plan, inflation should be back on target and interest rates on a downward slope. If this doesn’t happen we will be right back with 1970s style monetary turmoil. Add in the wars in Ukraine and the Middle East and 2024 promises to be a significant year.
For the finance and payments industry this has three major implications. First, expect plenty of volatility, especially in the currency markets. Sterling took a battering during the short-lived Truss administration, and while a new Labour government will do its best to look fiscally responsible, the markets are already worried about the solvency of the British state and the pound may well become under fresh assault. Meanwhile it is hard to believe the investors will like either the wild spending of a Biden second term, or the protectionism of Trump II. Selling the dollar on scale will be the only rational response.
Next, brace for the possibility of much higher interest rates. All we have seen so far is the normalisation of rates, returning to the roughly 5% levels that were standard before the 2008 crash. And yet if that is not enough to bring prices back under control, we may well see rates climbing to levels last seen in the 1970s and 1980s. The Federal Reserve rate hit an eye-watering 19% in 1980, and money was just as expensive around the rest of the world. Whether the world can cope with that without a major recession is open to debate. One point is certain, however. It would put huge strain on the banking system, and cause massive financial stress for borrowers.
Finally, expect more regulation and less competition. Sir Keir Starmer may have significantly reformed his party, but an incoming Labour government in the UK will be the most interventionist since the 1960s. We can expect far more regulation, and state targets, and that will include the City as well as industry. Indeed, the party is already planning to tell pension funds where they should put their money.
Likewise, either a Biden or Trump second term in the US will be far more protectionist and interventionist than American governments have been since the 1930s. Finance can expect to be far more tightly controlled than it has been before. It will also be far less competitive. Why? Because with higher interest rates venture capital funding has collapsed, and there won’t be anymore fintech challengers with plenty of cash in the bank trying to disrupt the market. The major players in finance will be far more regulated, but also far more secure. The industry will be duller, with less innovation, but it will at least be secure.
Every year is unpredictable. No one expected the collapse of the bond market in the last 12 months, or the failure of Credit Suisse or the regional banks in the US. There are always events that catch everyone by surprise and 2024 won’t be any different. But the political outlook will change significantly over the next year, and so will monetary policy. That much is certain — and that will impact every major industry.
Matthew Lynn is financial columnist for The Telegraph and The Spectator.