Economic review

 

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Financial health is financial wealth.

If you want to be financially healthy, please book an initial meeting and let’s discover if we can help you
Call us on 01332913006

 

 

Financial health is financial wealth.

If you want to be financially healthy, please book an initial meeting and let’s discover if we can help you
Call us on 01332913006

 

 

Financial health is financial wealth.

If you want to be financially healthy, please book an initial meeting and let’s discover if we can help you
Call us on 01332913006

 

Economic Review June 2023

Economic Review June 2023

SFFS_Economic_Review_June_23 Download your copy here 

Inflation persistence forces rates higher

 

The Bank of England (BoE) has sanctioned another hike in its benchmark interest rate after citing ‘significant upside news’ which suggests inflation is likely to take longer to fall back to the Bank’s target level.

 

Following its latest meeting, which concluded on 21 June, the BoE’s nine-member Monetary Policy Committee (MPC) voted by a 7-2 majority to raise Bank Rate by half a percentage point. This was the 13th successive increase taking rates to 5.0%, their highest level for 15 years.

 

The minutes to the meeting said there had been ‘significant upside news in recent data that indicates more persistence in the inflation process.’ They also stressed that the MPC will continue to ‘monitor closely indications of persistent inflationary pressures’ and ‘if there were to be evidence of more persistent pressures, then further tightening in monetary policy would be required.’

 

Commenting on the day the decision was announced, BoE Governor Andrew Bailey said, “The economy is doing better than expected but inflation is still too high and we’ve got to deal with it. If we don’t raise rates now, it could be worse later.

 

Data published by the Office for National Statistics (ONS) the day before the MPC’s announcement confirmed that the headline rate of inflation remains stubbornly high. The Consumer Price Index (CPI) 12-month rate – which compares prices in the current month with the same period a year earlier – stood at 8.7% in May, the same figure as the previous month and well above the 8.4% consensus prediction from a Reuters poll of economists.

 

The CPI inflation rate currently stands more than four times higher than the BoE’s 2% target and economists now typically expect to see another two quarter-point hikes over the coming months. The MPC’s next interest rate decision is due to be announced on 3 August.

 

Surprise rise in pay growth

 

 Although the latest official earnings statistics revealed that nominal wage levels are now rising at a record pace, the release also showed that pay growth is still failing to keep up with the continuing rapid rise in prices.

 

Figures published last month by ONS showed that average weekly earnings excluding bonuses, rose at an annual rate of 7.2% in the three months to April. This was up from 6.8% recorded in the previous three-month period and also higher than a 6.9% rise predicted in a Reuters poll of economists.

 

ONS Director of Economic Statistics Darren Morgan noted that, in cash terms, basic pay is now growing at the fastest rate since current records began over 20 years ago, excluding the period when figures “were distorted by the pandemic”. Mr Morgan added, “However, even so, wage rises continue to lag behind inflation.”  Indeed, in real terms, regular pay actually fell by 1.3% on the year during the February-April period.

 

Changes to the minimum wage implemented at the start of April were a key contributor to the record jump in nominal pay growth. Nearly two million workers benefited from a 9.7% rise which took the National Living Wage up to £10.42 an hour for those aged 23 and over.

 

The BoE has been closely monitoring pay levels, and the Bank Governor said the data showed “we’ve got a very tight labour market in this country.” The BoE has warned that large pay rises are likely to prolong the UK’s period of high inflation.

 

Recently published survey data also suggests pay settlements remain at a historically high level. Figures from XpertHR showed that the median basic pay settlement in the three months to the end of May held at the same record high that had been reported during the previous three-month period.

 

Markets (Data compiled by TOMD)

 

On the last trading day of June, global markets closed in largely positive territory, with new data confirming the UK avoided a winter recession, while a drop in eurozone inflation supported investor sentiment.

 

Across the pond, the Dow Jones index closed the month up 4.56% on 34,407.60, while the tech-focused NASDAQ closed the month up 6.59% on 13,787.92, supported by the advancement of Apple through the $3trn market cap threshold.

 

On the continent, the Euro Stoxx 50 closed June up 4.29% on 4,399.09. In Japan, the Nikkei 225 closed the month up 7.45%, on 33,189.04. With the lower value of the yen and positive changes in the domestic business environment, investors have taken a renewed interest in the world’s third largest economy.

 

In the UK, the FTSE 100 ended Q2 on 7,531.53 a gain of 1.15%. The domestically focused FTSE 250 closed the month on 18,416.76, a loss of 1.64% and the FTSE AIM closed June on 753.51 a monthly loss of 3.74%.

 

On the foreign exchanges, the euro closed the month at €1.16 against sterling. The US dollar closed at $1.26 against sterling and at $1.09 against the euro.

 

Gold closed the month trading at $1,912.25 a troy ounce, a monthly loss of 2.65%. Gold has been under pressure from expectations of further interest rate hikes stateside. Brent crude closed the quarter trading at around $75 a barrel, a monthly gain of 2.85%. Geopolitical pressures loom over oil supply and pricing heading into the second half of 2023.

 

 Index                                                  Value (30/06/23)                           Movement since 31/05/23

 

FTSE 100                                            7,531.53                                                           +1.15%                

FTSE 250                                           18,416.76                                                         -1.64%                               

FTSE AIM                                          753.51                                                               -3.74%

Euro Stoxx 50                                  4,399.09                                                           +4.29%                               

NASDAQ Composite                      13,787.92                                                         +6.59%                               

Dow Jones                                        34,407.60                                                         +4.56% 

Nikkei 225                                        33,189.04                                                         +7.45%                

 

Retail sales rise unexpectedly

 

The latest official retail sales statistics have revealed another surprise monthly increase in sales volumes, although more recent survey data does suggest retailers continue to face a difficult trading environment.

 

According to ONS data, sales volumes grew by 0.3% in May, exceeding economists’ expectations of a small monthly decline. The figures were boosted by an extra bank holiday to mark the coronation of King Charles as well as the arrival of more summery weather during the second half of the month.

 

Commenting on the data, ONS Senior Statistician Heather Bovill said, “Retail sales grew a little in May, with online shops doing particularly well selling outdoor goods and summer clothes, as the sun began to shine. Garden centres and DIY stores also saw growth, as the good weather encouraged people to start home and garden improvements.”

 

Survey data released last month also suggests that UK consumers remain remarkably resilient, with sentiment hitting its highest level since January 2022 as households turned more optimistic about their finances and the economy. Evidence from the latest CBI Distributive Trades Survey, however, points to weaker sales in June, and the business group said conditions for retailers are likely to remain ‘challenging’ in the months ahead.

UK economy sees modest growth

 Growth statistics released last month by ONS showed the UK economy edged higher in April, although forward-looking indicators do suggest any momentum may have been lost in the last couple of months.

The latest gross domestic product figures revealed that the UK economy grew by 0.2% in April, following a fall of 0.3% in March. ONS said retailers and the film industry, along with strong trade in bars and pubs were the main drivers of growth, outweighing contractions in both the manufacturing and construction sectors.

 

Data from the latest S&P Global/CIPS UK Purchasing Managers’ Index (PMI) released towards the end of last month, however, suggests there are signs the economy may now be cooling as a result of tighter monetary policy. The preliminary composite headline figure fell to a three-month low of 52.8 in June, down from 54.0 in May.

 

Commenting on the findings from the June PMI survey, S&P Global Market Intelligence’s Chief Business Economist Chris Williamson said, “The pace of expansion slowed amid signs of a growing toll from the rising cost of living and higher interest rates. Most notably, consumer spending on services, a core growth driver earlier in the year, is now showing signs of faltering.”

 

It is important to take professional advice before making any decision relating to your personal finances. Information within this document is based on our current understanding and can be subject to change without notice and the accuracy and completeness of the information cannot be guaranteed. It does not provide individual tailored investment advice and is for guidance only. Some rules may vary in different parts of the UK. We cannot assume legal liability for any errors or omissions it might contain. Levels and bases of, and reliefs from, taxation are those currently applying or proposed and are subject to change; their value depends on the individual circumstances of the investor. No part of this document may be reproduced in any manner without prior permission.

 

All details are correct at the time of writing (03 July 2023).

 

 

 

 

 

 

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Recent signs of economic resilience

Recent signs of economic resilience

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While the latest gross domestic product (GDP) statistics revealed that the UK economy stagnated in February, recent survey evidence paints a more positive picture with signs of ‘encouraging resilience’ and ‘growth momentum.’

 Official data released last month by the Office for National Statistics (ONS) showed that the economy saw no growth during February. ONS said that a strong rise in construction activity had been offset by a contraction in the services sector which was hit by a series of strikes by public sector workers, including teachers and civil servants.

 Despite February’s flat performance, an upward revision to January’s growth figure from 0.3% to 0.4%, means that the UK is now likely to avoid a contraction across the first quarter of this year as a whole. Indeed, in the three months to February, the economy actually expanded by 0.1%.

 Responding to the GDP data, Chancellor Jeremy Hunt said that the numbers showed there is “absolutely no room for complacency.” However, he did note that the economic outlook was “brighter than expected” and said that the UK does now seem “set to avoid recession.”

 Survey data released towards the end of last month added to signs that the UK may now defy forecasts of an impending recession. The preliminary headline figure from the S&P Global/CIPS UK Purchasing Managers’ Index, for instance, rose from 52.2 in March to 53.9 in April. This represents the strongest reading for a year and was the third consecutive month that the figure had been above the 50 threshold that denotes growth in private sector output.

Commenting on the survey’s findings, S&P Global Market Intelligence’s Chief Business Economist Chris Williamson said, “The key takeaway is that the economy as a whole is not only showing encouraging resilience but has gained growth momentum heading into the second quarter.”

 

 

Inflation remains stubbornly high

 The latest official consumer prices data showed that the UK headline rate of inflation remains in double digits, making it more likely that the Bank of England (BoE) will sanction another base rate hike at its forthcoming monetary policy meeting.

Data released last month by ONS revealed that the Consumer Prices Index (CPI) 12-month rate – which compares prices in the current month with the same period a year earlier – stood at 10.1% in March. Although this was lower than the previous month’s figure of 10.4%, it was well above the 9.8% predicted in a Reuters poll of economists and the 9.2% forecast that had been released by the BoE in February.

ONS said the largest downward pressure on March’s rate came from the transport sector as the price of motor fuels continued to decline. Further sharp rises in the cost of food, however, saw the CPI rate remain at a stubbornly high level, with prices across the food and non-alcoholic drinks category rising by 19% in the year to March, the fastest rate of increase for over 45 years.

March’s inflation statistics were the last significant data release before the BoE’s Monetary Policy Committee (MPC) next convenes and policymakers would have been disappointed not to have seen a more significant drop in inflationary pressures. The MPC is scheduled to announce its interest rate decision on 11 May with analysts now typically expecting another quarter percentage-point rise.

Recent comments made by BoE Deputy Governor Dave Ramsden appeared to confirm his desire to raise rates. Writing in The Times, the MPC member said, “When I look at where inflation is and where it needs to get to, I’m more focused on making sure that (we) stay the course in terms of the monetary policy decisions needed to get inflation back to target.”

 

Markets (Data compiled by TOMD)

At the end of April, global markets closed largely in positive territory. Although inflation remains a concern, stock markets closed higher as investors considered fresh economic data and a raft of corporate earnings.

 In the UK, the FTSE 100 ended the month on firmer ground, supported by gains in energy stocks. The blue chip index closed the month on 7,870.57, a gain of 3.13%, while the mid cap FTSE 250 closed up 2.62% on 19,425.14, and the FTSE AIM closed April on 829.94, a monthly gain of 2.55%.

 Despite weak economic growth in Q1, some positive earnings landed stateside, boosted by some strong results from banks and tech firms. In the US, the Dow Jones index closed the month up 2.48% on 34,098.16, while the NASDAQ closed the month up 0.04% on 12,226.58.

On the continent, the Euro Stoxx 50 closed April on 4,359.31, a gain of 1.03%. In Japan, markets traded higher after the Bank of Japan retained its monetary policy. The Nikkei 225 closed the month up 2.91%, on 28,856.44.          

              

On the foreign exchanges, the euro closed the month at €1.14 against sterling. The US dollar closed at $1.25 against sterling and at $1.10 against the euro.

Gold closed the month trading at $1,982.55 a troy ounce, a small monthly gain of 0.19%. The price of gold fell at month end as stronger-than-expected inflation in the US and jobs data weighed, raising expectations of further rate hikes. Brent crude closed the month trading at around $80 a barrel, a small monthly gain of 0.38%.

  

Index                                                  Value (28/04/23)                           Movement since 31/03/23

 

FTSE 100                                            7,870.57                                                           3.13%                                 

FTSE 250                                           19,425.14                                                         2.62%                                 

FTSE AIM                                          829.94                                                               2.55%

Euro Stoxx 50                                  4,359.31                                                           1.03%                                 

NASDAQ Composite                      12,226.58                                                         0.04%                                 

Dow Jones                                        34,098.16                                                         2.48%   

Nikkei 225                                        28,856.44                                                         2.91%                                                                                             

 

Rain dampens retail sales figures

Official data shows that sales volumes fell by a greater-than-expected amount in March with retailers blaming poor weather conditions for a reduction in shopper numbers.

The latest ONS statistics revealed that total retail sales volumes fell by 0.9% in March compared to the previous month’s figure. This decline was driven by the sixth-wettest March on record, which hit clothing retailers and garden centres, while food store sales also fell as consumers continued to be hit by soaring prices and shortages of some products.

ONS Director of Economic Statistics Darren Morgan, however, noted that the broader trend was less subdued than March’s figures alone suggest. Mr Morgan said, “A strong performance from retailers in January and February means the three-month picture shows positive growth for the first time since August 2021.”

Data from GfK’s latest Consumer Confidence Index also points to rising consumer optimism. The headline index increased for the third month in a row to reach -30 in April; this was six percentage points higher than March and the strongest reading since February last year. Consumers’ expectations for the economy and prospects for their personal finances both rose, along with shoppers’ willingness to make expensive purchases.

Further fall in job vacancies

The latest batch of employment statistics revealed a rise in the rate of unemployment and a fall in the number of job vacancies reflecting softer conditions in the labour market.

During the December to February period, the unemployment rate edged up to 3.8%, from 3.7% in the previous three months, to reach its highest level since the second quarter of 2022.

The labour market update also revealed that the total number of job vacancies fell for the ninth month in a row, falling by 47,000 in the January to March period. ONS said that companies had blamed ‘economic pressures’ as a factor for holding back on hiring new staff, although the statistics agency also noted that vacancy numbers still remain at a historically high level.

There was, however, a rise in the number of people looking for work principally driven by more young people leaving full-time education to find a job. In the three months to February, the employment rate edged up to 75.8%, 0.2 percentage points higher than in the previous three-month period, reflecting growth in the number of part-time employees and self-employed workers.Economic Review

It is important to take professional advice before making any decision relating to your personal finances. Information within this document is based on our current understanding and can be subject to change without notice and the accuracy and completeness of the information cannot be guaranteed. It does not provide individual tailored investment advice and is for guidance only. Some rules may vary in different parts of the UK. We cannot assume legal liability for any errors or omissions it might contain. Levels and bases of, and reliefs from, taxation are those currently applying or proposed and are subject to change; their value depends on the individual circumstances of the investor. No part of this document may be reproduced in any manner without prior permission.

 

All details are correct at the time of writing (02 May 2023)

 

 

 

Financial health is financial wealth.

If you want to be financially healthy, please book an initial meeting and let’s discover if we can help you
Call us on 01332913006