The latest gross domestic product (GDP) statistics show the UK economy unexpectedly shrank in April, increasing concerns about future growth prospects. Data released by the Office for National Statistics (ONS) revealed that the economy shrank by 0.3% in April following a fall of 0.1% in March; this was the first contraction in two consecutive months since the start of the pandemic. April’s figure was also much weaker than analysts had been expecting, with the consensus forecast from a Reuters poll of economists predicting a growth rate of 0.1%. ONS said a key driver behind April’s decline was a ‘significant reduction in NHS Test and Trace activity.’ It also noted some ‘common themes’ reported by firms across different industries, with many saying increases in the cost of production and supply chain shortages had affected their business. Commenting on the UK’s economic outlook the same day as the GDP figures were published, CBI Director General Tony Danker said the business group was “expecting the economy to be pretty much stagnant” and that “it won’t take much to tip us into a recession.” More recent survey data from S&P GlobalX’s closely watched Purchasing Managers’ Index also suggests the economy is showing signs of stalling. While the preliminary headline figure for June was unchanged at May’s 15-month low of 53.1, the index measuring new orders fell to 50.8, the weakest growth rate for over a year, with manufacturing order books dipping below the 50.0 growth threshold to 49.6. Chris Williamson, Chief Business Economist at S&P Global Market Intelligence said, “The economy is starting to look like it is running on empty. Current business growth is being supported by orders placed in prior months as companies report a near-stalling of demand. Business confidence has now slumped to a level which has in the past typically signalled an imminent recession.”

SFFS Economic Review_June 22

Bank warns of deteriorating outlook

The Bank of England (BoE) has warned that the UK faces a “sharp economic slowdown” in the coming months as it continues to raise interest rates in a bid to dampen rapidly rising prices.

Following its early-May meeting, the BoE’s nine-member Monetary Policy Committee (MPC) voted by a 6-3 majority to increase the Bank Rate from 0.75% to 1.0%, with the three dissenting voices each calling for a bigger hike to 1.25%. This was the fourth successive meeting that the MPC had raised rates, taking them to their highest level since 2009.

Central banks around the world are currently scrambling to cope with surging inflation which began after the post-pandemic reopening of the global economy and has continued to spiral following Russia’s invasion of Ukraine. Policymakers, however, are also trying to avoid sending their economies into a slump, which is creating a policy dilemma.

Speaking after the MPC announcement, BoE governor Andrew Bailey admitted, “We are in a very difficult position.” He added, “We’re walking a very narrow path between inflation on the one side, which is much higher than we want it to be, and on the other side very big external shocks which are causing a big loss of real income for people and businesses in this country.” Mr Bailey went on to warn of a “material deterioration in the outlook” for growth.

While falling short of predicting a technical recession – defined as the economy shrinking in two consecutive quarters – the BoE is now forecasting a decline in growth across the final three months of this year, with the economy then contracting by 0.25% in 2023. Minutes from the May MPC meeting though still point to further rate rises ‘in the coming months,’ with BoE Chief Economist Huw Pill recently warning “tightening still has further to run.”SFFS Economic Review_May 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.

IMF cuts growth forecast!

The International Monetary Fund (IMF) has warned that economic damage from the Ukraine conflict will contribute to a significant slowdown in the global economy with the UK set to be amongst the hardest hit.
In its latest assessment of world economic prospects, the IMF said the war in Ukraine is driving up fuel and food prices and that this will hit future growth prospects.
Global growth is now predicted to slow from an estimated 6.1% last year to 3.6% in both 2022 and 2023, 0.8 and 0.2 percentage points lower, respectively, than the organisation’s previous forecast published in January.
For the UK, the international soothsayer now predicts growth of 3.7% this year, down from January’s 4.7% prediction.
In 2023, the UK is forecast to have the slowest growth rate among the G7 advanced economies at just 1.2%, almost half the level of the previous forecast.
The IMF said this downgrade reflected elevated inflationary pressures and tighter monetary policy, along with the UK’s ongoing labour supply issues.
Meanwhile, the latest growth figures released by the Office for National Statistics (ONS) revealed a larger than expected slowdown in February, with the UK economy expanding by just 0.1%. This was significantly below January’s figure of 0.8% and lower than the consensus forecast in a Reuters poll of economists which predicted growth of 0.3%. ONS said the slowdown partly reflected a decline in manufacturing, with car production sharply down due to component shortages, and falls in computer
goods and chemical products.
Survey data also points to a more recent cooling in the pace of UK output.
The preliminary headline reading of the S&P Global/CIPS Composite Purchasing Managers’ Index dropped to a three month low of 57.6 in April, down from 60.9 in March, as high inflation and the Ukraine conflict weighed on service sector sentiment. http://sheldonflandersfinancialservices.co.uk/our-monthly-economic-review/

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.

BANK RATES RAISED AGAIN!!

Last month, the Bank of England (BoE)
sanctioned a further increase in its
benchmark interest rate as inflation
continues to surge significantly ahead
of the Bank’s target level.
Following a meeting held in mid-
March, the BoE’s nine-member Monetary
Policy Committee (MPC) voted by
an 8-1 majority to raise Bank Rate from
0.5% to 0.75%. This was the third meeting
in a row that the MPC had signalled
a tightening of monetary policy, taking
the Bank’s main interest rate back to its
pre-pandemic level.
Policymakers cited a strong labour
market and continuing signs of ‘robust
domestic cost and price pressures’ as
key reasons for the hike. Minutes to the
meeting also noted that Russia’s invasion
of Ukraine had led to ‘further large
increases in energy and other commodity
prices including food prices.’ As a result,
the BoE now expects inflation to reach
‘around 8% in April,’ almost a full percentage
point higher than it forecast in February
and four times its 2% target figure.
While the minutes did say that ‘some
further modest tightening in monetary
policy may be appropriate in the coming
months’ they also pointed to concerns
about the outlook for growth as
households struggle with a squeeze on
incomes. Indeed, analysts noted a more
dovish tone than was evident in the
previous set of minutes, with a distinct
softening of the language on the need
for future rate hikes.
Data subsequently released by the
Office for National Statistics (ONS), however,
showed that price rises continue to
exceed analysts’ expectations. In the 12
months to February, the rate of inflation
as measured by the Consumer Prices
Index, surged to a 30-year high of 6.2%.
This was significantly up on the previous
month’s rate of 5.5%, and 0.3% higher
than the median forecast in a Reuters
poll of economists.SFFS Economic Review_Mar 22

On the 23rd March 2022, on the 2nd anniversary of the Covid lockdown, Chancellor Rishi Sunak delivered his spring statement, beginning
by paying tribute to soldiers in the Ukrainian army.
The chancellor says the UK has a “moral responsibility” to use its “economic strength” to help Ukraine, including through economic and humanitarian aid, as well as sanctions against Russia.
But Sunak warns the actions taken against Russia are not cost-free.

Delivering the statement, the Chancellor made clear that the sanctions against Russia will not be cost-free for people at home, and that Putin’s invasion presents a risk to our economic recovery – as it does to countries all around
the world.
A summary follows:
spring 2022