Extra £30 Billion for Chancellor

After competing to sell the most during Christmas, supermarkets now pulling products from the shelves. This week, Tesco, Asda and Morrisons rationed a selection of salad products, such as peppers, cucumbers, lettuce and the fruit – not salad – the humble tomato. The shortage is expected to last for weeks. Environment secretary, Thérèse Coffey, was booed by farmers who blamed the shortages on poor weather conditions in southern Spain and North Africa.

UK farmers have campaigned for more support from government, with the rising costs of energy, feed and fertiliser impacting production. The good news is that energy prices have started to fall, and this should impact the cost of fertiliser. Ultimately this should filter through to inflation which has started a downward path. Central banks have considered the change and according to the US interest rate setting committee – the Federal Open Market Committee – it was central to the decision to slow down to a 0.25% rate increase in interest rates in February.

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• UK – No need for Chancellor to Hunt for extra budget
• Eurozone – Improved business activity adds to rate expectations
• Equities – Defence industry benefitting from prolonged war

(*Please note, The contents of this e-shot been prepared for general information only. It does not contain all of the information which an investor may require in order to make an investment decision. If you are unsure whether this is a suitable investment you should speak to your financial adviser. This information is not guaranteed to be correct, complete, or accurate. FE Research is a division of Financial Express Investments Ltd, registration number 03110696, which is authorised and regulated by the Financial Conduct Authority (FRN 209967). For our full disclaimer please visit www.financialexpress.net/uk/disclaimer. Data Sourced from FE Analytics, and Bloomberg Finance LP.)

Price rises are slowing, but not as fast as expected

Inflation in the UK and US continues to slow. The US Consumer Price Index dropped less than expected to 6.4%, only slightly down from December’s figure of 6.5%. Core inflation, excluding food and fuel costs, also dropped less than expected. In contrast, UK inflation fell faster than expected. CPI dropped from 10.5% in December to 10.1% and core inflation also fell more than predicted to 5.8%. The cost of food, alcohol and household services continues to rise but most other components saw inflation decline.

Meanwhile US and UK consumer spending has remained resilient and UK employment data suggests the jobs market remains strong. This has prompted investors to further revise their outlook for rate hikes as the US Federal Reserve again warned of the need to get inflation under control. These revisions have seen the pound fall against the dollar, while US and UK government bonds declined.

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• Inflation – Falls again as Bond markets reconsider the likely path of interest rates
• Japan – Will new Bank of Japan Governor start winding down bank stimulus?
• Commodities – Bumper profits unlikely to be sustained in 2023

(*Please note, The contents of this e-shot been prepared for general information only. It does not contain all of the information which an investor may require in order to make an investment decision. If you are unsure whether this is a suitable investment you should speak to your financial adviser. This information is not guaranteed to be correct, complete, or accurate. FE Research is a division of Financial Express Investments Ltd, registration number 03110696, which is authorised and regulated by the Financial Conduct Authority (FRN 209967). For our full disclaimer please visit www.financialexpress.net/uk/disclaimer. Data Sourced from FE Analytics, and Bloomberg Finance LP.)

UK: Outlook improves, but questions remain about resilience

The UK avoided recession in 2022 as GDP remained unchanged in the final quarter of the year. The International Monetary Fund has singled out the UK as the only developed economy expected to fall into recession in 2023, however, the National Institute for Economic and Social Research estimates the UK will avoid recession with modest annual growth of 0.2%. It expects unemployment to rise slowly and says older workers who left the workforce during the pandemic are likely to return to the workforce to deal with higher living costs. However, the NIESR says high inflation means it will feel like a recession for many people, with up to 7 million people unable to meet all their bills and disposable incomes falling by up to 13% for middle earning households.

Meanwhile the FTSE 100 hit a new all-time high as it passed the previous high water mark from 2018. The index of the UK’s largest companies has benefited from strong profits from the energy sector and the weaker pound has boosted the value of overseas earnings.

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• Global – Markets cool as Central Banks repeat warnings that rates may have to go higher than expected
• USA – Strong jobs market forces a review of rate expectations
• Equities – Big tech sees AI as the key to online ad revenues

(*Please note, The contents of this e-shot been prepared for general information only. It does not contain all of the information which an investor may require in order to make an investment decision. If you are unsure whether this is a suitable investment you should speak to your financial adviser. This information is not guaranteed to be correct, complete, or accurate. FE Research is a division of Financial Express Investments Ltd, registration number 03110696, which is authorised and regulated by the Financial Conduct Authority (FRN 209967). For our full disclaimer please visit www.financialexpress.net/uk/disclaimer. Data Sourced from FE Analytics, and Bloomberg Finance LP.)

Housing: Higher borrowing costs are pushing down prices

Housing markets around the world are feeling the effects of rising mortgage rates and lower affordability due to high inflation. Mortgage costs in the UK have recovered slightly after then-chancellor Kwasi Kwarteng’s mini-budget, however, the number of new mortgage applications tumbled to just over 35,000 in December, from 46,000 in November. New loans in the US are still declining and demand for mortgages in Europe has fallen at the fastest pace on record as mortgage rates have increased.

US house prices have fallen for the fifth month in a row and prices in the UK are falling at the fastest rate since the financial crisis in 2008. Prices are also falling in Germany, Denmark, Italy and Sweden and forecasts estimate they will fall by 5% this year. In New Zealand, Australia and Canada rising rates have put housing markets into reverse, with prices expected to fall by up to 20%. Meanwhile, efforts to restore confidence in the Chinese market have so far failed as new home sales in January were 32% below the 2022 level.

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• Global – Markets rally as they see the end of interest rate rises coming into view
• Central Banks – Rate hikes slow as banks weigh the evidence
• Equities – Energy stocks continue to benefit from high prices

(*Please note, The contents of this e-shot been prepared for general information only. It does not contain all of the information which an investor may require in order to make an investment decision. If you are unsure whether this is a suitable investment you should speak to your financial adviser. This information is not guaranteed to be correct, complete, or accurate. FE Research is a division of Financial Express Investments Ltd, registration number 03110696, which is authorised and regulated by the Financial Conduct Authority (FRN 209967). For our full disclaimer please visit www.financialexpress.net/uk/disclaimer. Data Sourced from FE Analytics, and Bloomberg Finance LP.)