This week the Bank of England’s job appeared to get harder as it faces the problem of trying to tackle inflation without doing significant damage to the economy. Inflation running in double digits since September is very bad news, and when you add a strong employment market and private sector wages rising at more than 6% a year it is easy to see why markets are predicting further interest rate rises. Gilt yields extended their recent rise as investors now see rates increasing to 5% this year. But there are already strong signs that the UK’s economy is slowing down.

After being kept artificially low by government Covid-era support and ultra-low interest rates, insolvencies have jumped sharply. Consumer confidence is still very negative and retail sales are falling fairly quickly. There is also evidence of an economic slowdown in the US. The Bank of England may be tempted to act decisively in the short-term to help reduce expectations of future inflation. However, inflation is likely to fall quickly as energy prices fall out of the annual calculation and the risks of a hard landing, partly due to aggressive rate hikes, are coming in to view.

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• UK – Headline inflation remains above 10%
• US – Fed sees the economy slowing as bank profits fall
• China – Return to growth as economy shakes off Covid effects

(*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.)

 

This week has seen inflation take centre stage once more. US headline inflation fell as expected, but core inflation ticked up slightly. This means rate hikes remain a live issue for the US Fed as other data shows the US economy remains robust. The minutes from the last interest rate meeting show Fed officials expect a mild US recession but the relatively calm market reaction shows that investors’ views have not significantly changed.

Meanwhile the chancellor has given an indication that the UK could be voting in a general election this time next year. In an interview at the International Monetary Fund conference in Washington, Jeremy Hunt said the government would call an election when the economy was starting to improve. While he said the IMF’s forecast for a 0.3% contraction this year is too gloomy, he agreed the UK will return to growth next year and expects inflation to be under 3% by the end of 2023. A lot has to go right for the government between now and then, but it appears the chancellor is keen to get to the polls as soon as possible to make the most of any positive sentiment.

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• Inflation – US inflation data presents a mixed picture, but markets still expect rate hikes to end soon.
• UK – MIMF predicts recession and meagre growth in 2024.
• Equities – Chinese demand provides a boost for luxury brands

(*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.)

This week we have seen equity markets put the problems caused by the bank sell-off behind them. Bank shares have yet to recover, but broader US and European markets are back to their level seen at the beginning of March as investors have settled on a view of where interest rates are headed. The view that we are very close to the peak of the hiking cycle received further support as headline inflation in the EU fell significantly – although core inflation actually rose. Although markets have been swift to move on, the problems facing banks have not disappeared. The huge volume of money leaving banks for the higher yields available in money markets will continue to stress banks that relied on customer apathy.

Meanwhile, the government has been trying to burnish its green credentials with a new energy policy. It’s an easy opportunity for a joke about politicians generating a lot of hot air, but criticism of the plan for being big on intentions but short on investment are fairly well made. Governments were never going to solve this winter’s energy crisis in a matter of months, but keeping the lights on long-term needs more than good intentions.

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• UK – Evidence that consumers are feeling the pinch
• Equities – Markets move past concerns about bank shares
• Energy – UK unveils net zero plan and aims to bring down costs

(*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.)