The markets ended 2022 on a high note, following what has been a very tough year for investors. The continued rise of inflation has ultimately led economies into a "once in generation" macro-economic cycle, of the kind last seen in the 1970s. There was a huge sell off in growth assets and fixed interest, to the extent that low risk investors generally performed worse than medium/high risk investors. Whilst we are far from out of the woods, inflation does now seem to be falling across most of the world and, although most central banks remain relatively hawkish on policy, there is an industry consensus that interest rates may not need to go as high as once predicted.

2023 has seen a positive start thus far with the FTSE 100 reaching a 3-year high, boosted by the reopening of China and a benign US employment report. The latter reported a December increase of 223,000 jobs versus the forecasted 200,000, high enough to suggest that the US has avoided recession but not so high that it would inflame inflation. The US economy remains finely balanced between lowering unemployment and avoiding a wage increase spiral, which would cause further inflationary problems.

In the UK, the Construction sector ended 2022 on a negative note and registered a three month decline amid what was the fastest contraction since the pandemic period of May 2020. Furthermore, Halifax reported a 1.5% house price value decline in December following on from a 2.4% decline in November. The consensus of forecasters’ expectations is now for an 8% fall in 2023. Time will tell with regard to how the impact of higher rates and the ongoing cost of living crisis will impact the housing market in 2023. However policy makers do have to be mindful of not damaging the UK housing market which has very much been the "golden goose" for over 20 years.

The Eurozone reported inflation of 9.2% versus consensus forecasts of 9.7% representing a fall from 10.1% in November, with falling energy prices being the main driver. European stocks were relatively buoyant amidst optimism that the European Central Bank will temper its aggressive interest rate rises this year. All was not rosy, however, as Germany (Europe's largest industrial producer) saw factory orders fall 5.3%. This was reported alongside a more upbeat announcement that German retail sales were up 1.1% versus their previous month.