Great expectations for the year ahead!

Given the challenges of the past two years SFFS Simply Wealth_Winter 22we could be forgiven for focusing on life’s trials and tribulations as a new year dawns. However, while concerns about supply chain disruption, new COVID variants and rising inflation may be disconcerting for investors, all the signs are that the coming 12 months will be a time of opportunity as well as risk, as we move towards a postpandemic future. Recovery continues In its final 2021 assessment of economic prospects, the International Monetary Fund (IMF) predicted a continuation of the global recovery in 2022, with the world economy forecast to grow by 4.9% this year. The international soothsayer did, however, acknowledge that the degree of uncertainty surrounding future prospects has risen with policy choices becoming more difficult and increasingly complex. Inflation-proof your wealth In particular, concerns surrounding global supply chain issues and rising inflation have created a policy dilemma for central banks. These twin concerns have also heightened the need for investors to employ careful and considered strategic thinking in order to reposition their portfolios to take advantage of new growth opportunities while ensuring their wealth is inflation proofed. Beware investment scams Although the spectre of rising inflation is expected to see central banks tighten monetary policy as the year progresses, deposit-based savings rates are forecast to remain at historically low levels. Such meagre returns have prompted many savers to shift their money into investments, with research1 suggesting over half of all adults have done so. This move though has raised concerns that unrealistically high return expectations could leave some investors susceptible to investment scams. Advice remains key While the coming year is sure to present ongoing challenges for investors, the key to successful investing will remain the adoption of a carefully considered strategy based on sound financial planning principles. Attractive investment opportunities are likely to present as 2022 unfolds and, with our help and careful repositioning of your portfolio, you should be able to make the most of these as and when they arise

Our economic review is intended to provide background to recent developments in investment markets as well as to give an indication of how some key issues could impact in the future. It is not intended that individual investment decisions should be taken based on this information; we are always ready to discuss your individual requirements. We hope you will find this review to be of interest.

Interest rates rise again!

Last month, the Bank of England’s Monetary Policy Committee (MPC) signalled an increase in its main interest rate for the second meeting in a row as the Bank continues to grapple with a rapid rise in the cost of living. At its latest meeting held in early February, the MPC sanctioned a quarter of a percentage point rate rise taking Bank Rate to 0.5%. In what was a surprise split decision, however, four of the nine-member committee voted for a larger hike, seeking to raise rates by half a percentage point. The decision to increase rates is designed to contain the country’s spiralling rate of inflation, which the Bank now expects to peak at around 7.25% in April. This would represent the fastest rate of consumer price growth since 1991 and would leave inflation significantly above the Bank’s 2% target level. Data subsequently released by the Office for National Statistics (ONS) showed that inflation, as measured by the Consumer Prices Index, rose to 5.5% in the 12 months to January, putting the cost of living at a near 30-year high. This figure was above most predictions in a Reuters poll of economists, with the consensus suggesting the rate would hold steady at the previous month’s level of 5.4%. The latest inflation statistics appear to have reinforced the chances of a third consecutive rate rise at the conclusion of the MPC’s next meeting on 17 March. The minutes from February’s meeting acknowledged that the Bank expects ‘further modest tightening in monetary policy’ to be appropriate ‘in the coming months’ and, according to a Reuters poll, most economists now predict a quarter percentage point rise in March. Furthermore, almost half of respondents also forecast a similar hike at May’s meeting. SFFS Economic Review_Feb 22

Our economic review is intended to provide background to recent developments in investment markets as well as to give an indication of how some key issues could impact in the future. It is not intended that individual investment decisions should be taken based on this information; we are always ready to discuss your individual requirements. We hope you will find this review to be of interest.

Economy regains pre-pandemic size.

The UK economy grew strongly in November to move beyond its preCOVID level with increasing momentum recorded across all industry sectors prior to the arrival of the Omicron variant. Data released by the Office for National Statistics (ONS) revealed that the economy grew by 0.9% in November. This was much stronger than the consensus forecast predicted in a Reuters poll of economists and saw the UK economy finally recover all of the ground lost during the pandemic, with November’s output figure 0.7% above its February 2020 level. Commenting on the figures, ONS Chief Economist Grant Fitzner said, “The economy grew strongly in the month before Omicron struck, with architects, retailers, couriers and accountants having a bumper month. Construction also recovered from several weak months as many raw materials became easier to get hold of.” Economic activity over the last two months, however, has clearly been hit by the spread of the Omicron variant. Data from IHS Markit/CIPS Purchasing Managers’ Index (PMI) reported a sharp slowdown in UK private sector growth in December and activity slipped further in January as Omicron again hit consumerfacing companies. Disruption due to the rise in virus cases also contributed to the International Monetary Fund (IMF) cutting its 2022 global growth forecast. In its latest economic musings released on 25 January, the international soothsayer noted that the world economy was in a ‘weaker position’ than previously expected and downgraded its prediction for global growth by half a percentage point to 4.4%. SFFS Economic Review_Jan 22

Bank sanctions December rate rise

The Bank of England (BoE) sanctioned a 15-basis-point increase in its main interest rate on 16 December and warned that inflation is now likely to hit 6% by spring.

At its latest meeting held in mid-December, the BoE’s nine-member Monetary Policy Committee voted by an 8-1 majority to raise Bank Rate to 0.25% from its previous historic low of 0.1%. This was the Bank’s first rate hike in more than three years and resulted in the BoE becoming the world’s first major central bank to raise rates since the onset of the pandemic.

The announcement was made a day after the Office for National Statistics (ONS) released the latest inflation data, which showed the cost of living is now rising at its fastest rate for 10 years. In the 12 months to November, the rate of inflation, as measured by the Consumer Price Index (CPI), surged to 5.1%. This was significantly higher than October’s 4.2% figure and above all forecasts in a Reuters poll of economists.

Speaking after announcing the rate hike, BoE Governor Andrew Bailey said that an outlook for “more persistent inflation pressures” had forced the Bank to act. Mr Bailey said, “We’re concerned about inflation in the medium term and we’re seeing things now that can threaten that. So that’s why we have to act.” 

The Governor also revealed that the Bank now expects the CPI inflation rate to peak at around 6% in April, which would be three times above the BoE target figure. Although the rate is then expected to fall back across the second half of 2022, the Bank acknowledged that more “modest tightening of monetary policy” over the three-year forecast period “is likely to be necessary” in order to ensure inflation sustainably returns to its 2% target level.

SFFS Economic Review_Dec 21