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Interest rate peak may be approaching

Last month the Bank of England (BoE) announced another hike in its benchmark interest rate but hinted that rates may now be nearing a peak, as the tide in its battle with inflation begins to turn.

Following its latest meeting held at the beginning of February, the BoE’s nine-member Monetary Policy Committee (MPC) voted by a 7–2 majority to raise Bank Rate by 0.5 percentage points to 4.0%. This was the tenth consecutive increase sanctioned by the MPC and took rates to their highest level in over 14 years.

The minutes to the meeting noted that ‘considerable uncertainties’ around the outlook remain and that risks to inflation are ‘skewed significantly to the upside.’ However, they also stated that updated MPC projections show ‘inflation falling back sharply’ from current elevated levels, with the headline rate expected to dip to around 4% towards the end of the year.

Commenting after announcing the MPC decision, BoE Governor Andrew Bailey cautiously acknowledged that price rises have begun to edge back. Mr Bailey said, “We’ve seen the first signs that inflation has turned the corner. But it’s too soon to declare victory just yet –inflationary pressures are still there.”

The latest official inflation statistics also suggest the headline rate is now on a downward path. The Consumer Prices Index (CPI) annual rate – which compares prices in the current month with the same period a year earlier – fell to 10.1% in January. This represents the third successive monthly decline since CPI inflation hit a 41-year high of 11.1% in October.

Although analysts do still typically expect the MPC to sanction at least one more hike, there does seem to be a growing consensus that the high point in the current interest rate cycle is approaching. The next MPC meeting is due to conclude on 23 March.

Bank of England predicts shallower recession

Updated economic forecasts published last month by the BoE suggest the UK will enter recession this year but that the downturn will be less severe than previously feared.

According to the latest economic growth figures released by the Office for National Statistics (ONS), the UK narrowly avoided entering recession at the end of 2022. Despite monthly data showing the economy shrank by 0.5% in December, growth in the previous two months resulted in an overall growth rate of zero across the final quarter of last year.

While this figure is only a first estimate and may therefore be revised, either up or down, it does currently show the UK avoided a second successive quarterly contraction which would have met the technical definition of a recession. Analysts, however, still expect further economic weakness this year – CBI Lead Economist Ben Jones, for instance, commented, “We may have avoided a technical recession late last year, but we probably won’t avoid one this year.”

The BoE’s latest economic assessment also suggests the UK will enter recession during the coming months, although their revised projections imply any downturn will be ‘much shallower’ than previously envisaged. The Bank now expects the economy to shrink by 0.5% during 2023, significantly lower than the 1.5% contraction forecast in November, with the recession expected to last five quarters rather than eight as previously predicted.

Survey data released towards the end of last month has even raised hopes that the UK might actually avoid recession altogether during the first half of this year. The preliminary headline figure from the S&P Global/CIPS UK Purchasing Managers’ Index jumped to 53.0 in February, up from 48.5 the previous month. This is the first time since July that the reading has been above 50, the threshold which indicates growth in private sector output.

Markets (Data compiled by TOMD)

On 27 February, Prime Minister Rishi Sunak and European Commission President Ursula von der Leyen announced a new agreement had been reached on post-Brexit trading arrangements for Northern Ireland. At month end, investors were digesting the trade deal between the UK and the European Union. 

In the UK, the FTSE 100 hit the 8,000 milestone for the first time in mid-February, as concerns of a global recession began to ease. Shares were supported by the release of better-than-expected inflation data. The blue-chip index moderated to close the month on 7,876.28, a gain of 1.35% in February. The FTSE 250 ended the month up 0.25% on 19,903.28, while the FTSE AIM closed out the month on 859.37, a small monthly loss of 0.97%.

In the US, the NASDAQ closed February on 11,455.54, a loss of 1.11%. The Dow Jones index closed the month down 4.19% on 32,656.70. In Japan, the Nikkei 225 closed February up 0.43%, on 27,445.56. Japan equities were supported at month end by gains in the Machinery, Precision Instruments and Electrical / Machinery sectors. On the continent, the Euro Stoxx 50 closed the month on 4,238.38, registering a gain of 1.80%.

On the foreign exchanges, the euro closed the month at €1.14 against sterling. The US dollar closed at $1.20 against sterling and at $1.06 against the euro.

Brent crude closed the month trading at around $83 a barrel, a loss of 1.77% over the month. Gold closed the month trading at around $1,824 a troy ounce, a monthly loss of 5.16%. The gold price has been negatively impacted in the month following the release of strong economic data, fuelling expectations of more interest rate increases.

Index                              Value (28/02/23)                 Movement since 31/01/23

FTSE 100                        7,876.28                                  +1.35%                               

FTSE 250                       19,903.28                                +0.25%                               

FTSE AIM                      859.37                                      -0.97%

Euro Stoxx 50              4,238.38                                  +1.80%                               

NASDAQ Composite  11,455.54                                -1.11%                               

Dow Jones                    32,656.70                                -4.19% 

Nikkei 225                    27,445.56                                +0.43%                                                                                           

Retail sales rebound unexpectedly

Official data has revealed a surprise increase in sales volumes during January, although more recent survey evidence does suggest the retail outlook remains challenging.

According to the latest ONS data, total sales volumes in January rose by 0.5%, as shoppers sought to take advantage of New Year sales promotions. ONS said discounting helped lift sales at online retailers as well as jewellers, cosmetic stores and carpet and furnishing shops, although growth was also partly driven by an increase in fuel sales as prices at the pumps continued to decline.

Data revisions, however, saw December’s figure fall more sharply than previously reported, with updated data showing a drop of 1.2% from November rather than the originally estimated 1.0% decline. Darren Morgan, Director of Economic Statistics at ONS, commented, “After December’s steep fall, retail sales picked up slightly in January, although the general trend remains one of decline.”

This challenging environment was also highlighted in the CBI’s latest Distributive Trades Survey, with retailers reporting broadly unchanged sales volumes in February while expecting sales to fall this month. CBI Principal Economist Martin Sartorius said, “Whilst retail sales volumes were largely unchanged in the year to February, firms remain pessimistic about their business outlook.”

Chancellor receives pre-Budget boost

The latest public sector finance statistics revealed an unexpected budget surplus giving Chancellor Jeremy Hunt a little more leeway as he prepares to deliver his Spring Budget.

Figures released by ONS showed that UK public sector net borrowing (the gap between the country’s overall income and expenditure) returned to a surplus of £5.4bn in January. This figure, which was boosted by the highest self-assessed Income Tax receipts since records began in 1999, was significantly better than economists had been expecting.

As a result, total government borrowing across the first ten months of the current fiscal year now stands at £117bn. While this does still represent a large shortfall by historic standards, the figure is just over £30bn lower than the Office for Budget Responsibility had predicted when it produced forecasts for the Chancellor’s Autumn Statement in November.

This data does therefore appear to provide the Chancellor with a little more wiggle room as he sets out the tax and spending plans he will deliver in the Spring Budget on 15 March. Mr Hunt, however, has played down any suggestions of significant tax cuts recently saying, “It is vital we stick to our plan to reduce debt over the medium term.”

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 (01 Mar 2023).

You can download this update here

UK growth beats expectations

The latest gross domestic product (GDP) statistics show the economy unexpectedly grew in November easing fears that the UK has already slipped into recession.

Data released by the Office for National Statistics (ONS) revealed that the UK economy expanded by 0.1% in November. This figure was higher than any forecast submitted to a Reuters poll of economists with the consensus prediction suggesting the economy would shrink by 0.2% across the month.

ONS said much of the growth was linked to the football World Cup, with pubs and restaurants benefiting as people went out to watch the games. The figures were also boosted by an increase in demand for services in the tech sector.

November’s better than anticipated data makes it more likely that the UK managed to avoid entering recession during the final half of last year. Economists are now typically forecasting that GDP will have flatlined during the fourth quarter of 2022 and thereby dodged the technical definition of a recession.

However, the consensus view does still suggest the UK is likely to record two negative quarters of growth during the first half of this year as consumers continue to struggle with rising food and energy bills, and ongoing industrial action acts as a drag on growth. A recent Reuters poll puts a 75% chance on the UK slipping into recession this year, although any downturn is expected to be relatively shallow.

This view was largely supported by data from the recently released S&P Global Purchasing Managers’ Index. While the closely monitored survey recorded a sixth consecutive monthly decline in UK business activity during January, the scale of the downturn signalled by the data remains relatively modest by historic standards. There was also some positive news from forward-looking indicators, with a jump in business optimism for the year ahead.

Inflation expected to fall rapidly

Bank of England (BoE) Governor Andrew Bailey has suggested that a recent easing in the headline rate of inflation could be a sign that “a corner has been turned.”

Data released last month by ONS showed that the Consumer Prices Index (CPI) annual rate – which compares prices in the current month with the same period a year earlier – fell to 10.5% in December. This was the second successive monthly decline since inflation hit a 41-year high of 11.1% in October.

ONS said that easing price pressures for motor fuels and clothing had pushed down December’s headline rate. Dips in these sectors, however, were partially offset by a further sharp rise in the cost of food and non-alcoholic drinks, while restaurant and hotel prices also increased significantly.

Despite the latest fall, the annual rate of CPI inflation clearly remains well above the BoE’s 2% target level. Indeed, when releasing the data, ONS Chief Economist Grant Fitzner pointed out that, “Although we’ve seen a second consecutive easing, it is a fairly modest fall and inflation is still at a very high level with overall prices rising strongly.”

Economists and policymakers, however, are increasingly predicting that inflation has now peaked. Last month, for example, the BoE Governor said inflation looks set to fall “quite rapidly” from the spring as energy prices decrease and that the Bank was more optimistic inflation could be on an “easier path.”

Other data published last month also points to easing inflationary pressures. The latest producer prices data from ONS, for instance, unexpectedly revealed a drop in manufacturers’ input and output prices in December, with both recording the largest monthly fall since April 2020. In addition, a CBI survey found that British factories reported the slowest growth in costs for almost two years during the three months to January.

Markets (Data compiled by TOMD)

Major global indices closed January in positive territory. As the month drew to a close, investors were looking ahead to the Federal Reserve and Bank of England monetary policy decisions in early February.

In the UK, the FTSE 100 ended January on 7,771.70, a gain of 4.29% in the month. The domestically focused FTSE 250, more closely correlated to the UK economy, closed the month up 5.31% on 19,853.45, while the FTSE AIM closed January on 867.82, a monthly gain of 4.39%. UK markets were impacted at month end after the International Monetary Fund’s forecast detailed lagging growth versus G7 counterparts.

Across the pond, the Dow Jones index closed January up 2.83% on 34,086.04, while the NASDAQ closed the month up 10.68% on 11,584.55, amid a flurry of corporate earnings and the imminent Fed policy meeting. On the continent, the Euro Stoxx 50 closed the month on 4,163.45, registering a gain of 9.75%. In Japan, the Nikkei 225 closed January up 4.72%, on 27,327.11.                                        

On the foreign exchanges, the euro closed the month at €1.13 against sterling. The US dollar closed at $1.23 against sterling and at $1.08 against the euro.

Gold closed the month trading at around $1,923 a troy ounce, a monthly gain of around 6.0%. The gold price has risen as demand for the precious metal holds firm in the face of economic uncertainty. Brent crude closed the month trading at around $85 a barrel, a small monthly gain of 0.77%. The next OPEC+ (Organization of the Petroleum Exporting Countries and allies) producer meeting in early February will provide clarity on the trajectory of global supplies.

Index                              Value (31/01/23)                 Movement since 31/12/22

FTSE 100                        7,771.70                                  +4.29%                               

FTSE 250                       19,853.45                                +5.31%                               

FTSE AIM                      867.82                                      +4.39%

Euro Stoxx 50              4,163.45                                  +9.75%                               

NASDAQ Composite  11,584.55                                +10.68%                                           

Dow Jones                    34,086.04                                +2.83% 

Nikkei 225                    27,327.11                                +4.72%                                                                                           

Pay growth picks up pace

While the latest earnings statistics revealed that wages are now rising at their fastest rate in over 20 years, the data also showed that pay growth is still failing to keep up with the rise in prices.

According to figures released last month by ONS, average weekly earnings excluding bonuses rose at an annual rate of 6.4% in the three months to November. This figure represents the strongest growth in regular pay since records began in 2001, excluding the coronavirus period when the data was distorted by workers returning from furlough.

However, despite this historically high level of nominal earnings growth, the real value of people’s wages continues to fall, with regular pay levels actually down by 2.6% when adjusted for inflation. Although this decline is slightly smaller than the 3.0% fall in real regular pay reported in Q2 2022, it still represents one of the largest real declines in wages ever recorded.

The latest data also highlighted the wide disparity in pay growth for private sector and public sector workers. In the three months to November, private-sector regular pay levels rose by an average annual rate of 7.2% compared with 3.3% across the public sector.

Retail sales suffer December decline

Official data shows that sales volumes fell in December, capping a difficult year for the retail sector, while more recent survey evidence suggests conditions remain challenging.

The latest ONS retail sales statistics revealed that total sales volumes in December unexpectedly fell by 1.0% from the previous month and by a record 5.8% compared with December 2021. Across the whole year, sales volumes declined by 3.0% compared with 2021, the worst full-year performance since records began in 1997.

While rising prices did see many retailers report relatively strong festive sales figures in monetary value terms, the official data shows that high inflation has resulted in shoppers effectively getting less for their money. ONS also noted that feedback from retailers suggested consumers were “cutting back on spending because of increased prices and affordability concerns.”

Survey data suggests sales volumes continued to slide in the new year, with the CBI’s latest Distributive Trades Survey showing a net balance of retailers reporting year-on-year sales growth falling to -23% in January. CBI Principal Economist Martin Sartorius said, “Retailers began the new year with a return to falling sales volumes, as the sector continues to face the twin headwinds of rising costs and squeezed household incomes.” 

All details are correct at the time of writing (01 Feb 2023).

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

You can download this update here

Bank Rate raised again

In mid-December, the Bank of England (BoE) announced another hike in its benchmark interest rate and warned that further increases are likely in order to sustainably return inflation to target level.

Following its latest meeting which concluded on 14 December, the BoE’s nine-member Monetary Policy Committee (MPC) voted by a 6-3 majority to raise Bank Rate by 0.5 percentage points to 3.5%. This was the ninth consecutive increase sanctioned by the MPC over the past 12-month period and took rates to their highest level since autumn 2008.

One member of the committee did vote for a more significant rise, preferring to increase Bank Rate by 0.75 percentage points in order to tackle what she viewed as heightened inflation risks since the previous meeting held in early November. The two other dissenting voices, however, each said it was now time to halt rate rises entirely, arguing that earlier policy decisions were “more than sufficient” to get inflation back to target.

While this difference in opinion does show that individual members of the committee are likely to hold differing views on the future path of interest rates, the minutes of the meeting did suggest further monetary tightening is likely. Specifically, they said, ‘The labour market remains tight and there has been evidence of inflationary pressures in domestic prices and wages that could indicate greater persistence and thus justifies a further forceful monetary policy response.’

In conclusion, the minutes stated, ‘The majority of the Committee judges that, should the economy evolve broadly in line with the November Monetary Policy Report projections, further increases in Bank Rate may be required for a sustainable return of inflation to target.’ The next MPC meeting is scheduled to take place early next month with the interest rate announcement due to be made on Thursday 2 February.

Jobs market shows signs of cooling

While the latest batch of labour market statistics suggest the jobs market may be starting to soften, they also show both vacancies and the number of people classed as economically inactive remain at historically high levels.

Figures released last month by the Office for National Statistics (ONS) revealed that the unemployment rate rose to 3.7% between August and October, up from 3.6% in the previous three-month period. The release also reported a drop in the number of job vacancies, which fell by 65,000 across the September–November period, the fifth consecutive decline for this measure.

Commenting on the data, ONS Head of Economic Statistics Sam Beckett suggested the fall in vacancies was a sign that the jobs market “could be starting to soften a little.” Ms Beckett went on to say that some businesses “were starting to pull some of their vacancies because they are reducing activity”, although she also noted that vacancies remain at historically high levels, with almost 1.2 million unfilled roles.

The latest release also reported a decline in the proportion of 16 to 64-year-olds who are neither in employment nor looking for work, with the economic inactivity rate falling to 21.5% between August and October, 0.2 percentage points lower than the previous three-month period. This reduction was most notable among older people, suggesting cost-of-living pressures may be prompting some to rethink early retirement plans.

Despite this fall, the inactivity rate remains significantly higher than before the pandemic, with over 560,000 more people now classed as economically inactive. As a result, employers continue to face recruitment challenges and, according to a report in The Times, this has led the government to consider plans to coax older people back into the workforce, with suggestions that a public information campaign focusing on the over-50s could air in the spring.

Markets (Data compiled by TOMD)

Major global indices closed December in negative territory, rounding off a challenging year, impacted by the war in Ukraine, rising inflation, higher interest rates and recessionary concerns.

The UK’s benchmark index ended the year slightly higher in contrast to the sharp drop in other domestic, US and European markets. The blue-chip FTSE 100 index lost 0.81% on the last trading day of the year, to close at 7,451.74, a modest gain of 0.91% for 2022 as a whole. The domestically focused FTSE 250, more closely correlated to the UK economy, weighed down by economic and political uncertainty, closed the year 19.70% lower on 18,853.00, while the FTSE AIM closed on 831.33, a loss of over 31% in the year.

In the US, the Dow closed the year registering its biggest annual loss since the 2008 financial crisis. The Federal Reserves’ quickest succession of rate hikes in forty years taking their toll on markets. The Dow closed the year down around 8.78% on 33,147.25, while the NASDAQ closed the year down over 33% on 10,466.48. Meanwhile, the Nikkei 225 ended the year on 26,094.50, down over 9%, and the Euro Stoxx 50 closed the year over 11% lower on 3,793.62.

On the foreign exchanges, the euro closed the year at €1.12 against sterling. The US dollar closed the year at $1.20 against sterling and at $1.07 against the euro.

Brent crude closed the year trading at around $84 a barrel, an annual gain of over 8%. At the end of December, oil prices were negatively impacted as the US and UK became the latest countries to impose restrictions on travellers from China amid fears over surging COVID infection numbers. In addition, fears of recessions around the world look set to impact oil demand and prices into 2023. Gold is trading at around $1,813 a troy ounce, a small annual loss of around 0.43%.

Index                                 Value (30/12/22)               Movement since 30/11/22

FTSE 100                                  7,451.74                              -1.60%                                              

FTSE 250                                18,853.00                            -1.62%                               

FTSE AIM                                   831.33                               -2.03%

Euro Stoxx 50                        3,793.62                              -4.32% 

NASDAQ Composite           10,466.48                            -8.73%

Dow Jones                              33,147.25                             -4.17% 

Nikkei 225                              26,094.50                            -6.70%                

UK economy rebounds in October

Although official growth statistics released last month did reveal an expansion in output during October, survey evidence still suggests the UK economy is likely to have already entered recession.

According to the latest gross domestic product figures the economy grew by 0.5% in October compared to the previous month. This rebound, however, came after September’s output was negatively impacted by the additional bank holiday for Queen Elizabeth’s funeral, which resulted in reduced trading hours for many businesses.

Despite October’s bounce-back, most analysts still expect the economy to have contracted during the fourth quarter as a whole. With third quarter data revisions showing the economy shrank by 0.3% in the three months to September, if output does fall across the final quarter of the year, it will be a second successive quarterly contraction and thereby meet the technical definition of a recession.

Survey data does suggest the economy is likely to have shrunk during the final two months of the year. The headline reading of S&P Global’s Purchasing Managers’ Index, for instance, came in at 48.2 in November while December’s preliminary reading was 49.0; any value below 50 represents economic contraction with these figures pointing to a fourth quarter decline of 0.3%.

Inflation rate eases slightly

Official consumer price statistics show the UK headline rate of inflation dipped in November although the latest figure does remain more than five times above the BoE’s 2% target level.

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 10.7% in November. This was down from the previous month’s figure of 11.1% and represents a sharper fall than had been predicted in a Reuters poll of economists.

ONS said the largest downward contributions came from motor fuels, with prices easing from previous record highs, and second-hand cars. These dips, however, were partially offset by a further rise in price levels at restaurants, cafes and pubs, as well as continuing growth in food prices which increased by a 45-year high of 16.5%.

While the latest data shows the cost of living is still rising at its fastest pace in 40 years, it has raised hopes that the surge in prices may now have peaked. Although analysts expect inflation to remain at relatively elevated levels, November’s dip is forecast to be followed by further declines over the coming months.

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.

You can download this update here

OBR forecasts long but shallow recession

Updated projections from the Office for Budget Responsibility (OBR) suggest the UK is facing a long but relatively shallow recession which will see households hit by a record drop in living standards.

Chancellor Jeremy Hunt unveiled the independent fiscal watchdog’s latest forecasts during his Autumn Statement delivered to the House of Commons on 17 November. Mr Hunt said the country was facing “unprecedented global headwinds” before announcing the OBR’s new figures which show the UK entered recession during the third quarter of this year.

The updated predictions suggest the UK economy will expand by 4.2% across the whole of 2022, but then shrink by 1.4% next year before returning to growth in 2024. This implies that the downturn will be relatively shallow, if long by historic standards.

Although the recession is forecast to be comparatively shallow for the economy as a whole, the household sector is expected to be hit particularly hard due to a combination of factors including soaring energy and food prices, rising interest rates and higher taxes. As a result, the OBR figures suggest households are facing the largest fall in living standards on record.

Prior to the Chancellor’s Statement, the latest gross domestic product figures from the Office for National Statistics (ONS) had revealed that the UK economy shrank in the three months to September. ONS said the economy contracted by 0.2% across the third quarter of the year driven by a decline in manufacturing which was evident ‘across most industries.’

Survey data also suggests the economy continued to shrink during the first two months of the fourth quarter. The headline reading of S&P Global’s Purchasing Managers’ Index, for instance, sank to a 21-month low of 48.2 in October and November’s preliminary reading rose only marginally to 48.3. Any value under 50 represents economic contraction.

Bank Rate hiked sharply

Last month, the Bank of England (BoE) sanctioned a further increase in its benchmark interest rate and said more rises were likely but not to levels that had been priced in by financial markets.

At a meeting which concluded on 2 November, the BoE’s nine-member Monetary Policy Committee (MPC) voted to raise Bank Rate by 0.75 percentage points to 3.0%. This was the eighth consecutive increase since December and the largest rate hike since 1989. In addition, minutes to the meeting stated that a majority of MPC members believe ‘further increases in Bank Rate may be required for a sustainable return of inflation to target.’

However, the minutes also pointed out that the peak in rates is expected to be lower than markets had been anticipating. Indeed, in an unusually blunt message delivered when announcing the rate decision, Bank Governor Andrew Bailey said, “We can’t make promises about future interest rates but based on where we stand today, we think Bank Rate will have to go up by less than currently priced in financial markets.”

The next interest rate announcement is due on 15 December and economists expect MPC members to sanction another increase in rates – in a recent Reuters poll, more than three-quarters of all economists surveyed predicted rates will rise by 0.5 percentage points, with all of the other respondents predicting a 0.75 percentage point increase.

Comments made during the last few weeks by a number of MPC members have also reaffirmed the need for further rises in order to return inflation to the central bank’s 2% target. Some members, however, including BoE Deputy Governor Dave Ramsden, have begun to mention the possibility of rate cuts at some point in the future, should economic conditions diverge from current expectations and “persistence in inflation stops being a concern.”

Markets (Data compiled by TOMD)

Global indices largely closed November in positive territory. In the UK the FTSE 100 advanced, ending the month at its highest closing level for five months, supported by commodity and energy stocks. The blue-chip index closed the month up 6.74% to 7,573.05, while the mid-cap FTSE 250 gained 7.12% and the FTSE AIM ended the month up 5.27%.

On Wall Street, markets closed sharply higher following Federal Reserve Chair Jerome Powell’s speech on 30 November, indicating the central bank might scale back the pace of its interest rate hikes as soon as December. The Dow closed the month up 5.67% on 34,589.77, while the Nasdaq closed November on 11,468.00, up 4.37%.

At the end of November, European Central Bank President Christine Lagarde said that a more hawkish line on rising inflation was needed on the continent, suggesting that more rate hikes are likely in the coming months. The Euro Stoxx 50 closed the month up 9.60%. In Japan, the Nikkei 225 closed November up 1.38%.

On the foreign exchanges, the euro closed at €1.15 against sterling. The US dollar closed the month at $1.19 against sterling and at $1.03 against the euro.

Brent Crude closed the month trading at around $86 a barrel, a loss of 5.32%. Signs of an oversupplied market earlier on in the month pushed prices lower but it recovered in recent days as discussions on a Russian price cap continue and government data showed US stockpiles plunging, while traders accelerated buying amid optimism that China will soon loosen restrictions. Gold is currently trading at around $1,753 a troy ounce, a gain of 6.99% on the month.

Index                                Value (30/11/22)      Movement since 31/10/22

FTSE 100                         7,573.05                                 +6.74%                               

FTSE 250                         19,163.33                               +7.12%                               

FTSE AIM                        848.59                                    +5.27%                

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Record pay growth still lags inflation

While the latest earnings statistics revealed regular pay is now rising at a record level, the data also showed wage growth is still failing to keep up with the rapidly rising cost of living.

ONS figures released last month showed average weekly earnings excluding bonuses rose at an annual rate of 5.7% in the three months to September. This was the strongest recorded growth in regular pay witnessed outside of the pandemic when the data was distorted by workers returning from furlough.

However, although the rate of pay growth is currently high by historic standards, wage increases are still being outpaced by spiralling inflation – in real terms, regular pay actually fell by 2.7% over the year to September. This represents a slightly smaller decline than the record fall recorded three months ago but is still among the largest falls since comparable records began in 2001.

The latest official inflation statistics also revealed a further jump in price growth during October, with soaring energy bills and food prices pushing the annual figure to a 41-year high. The headline rate of Consumer Price Inflation rose to 11.1% in the 12 months to October, a big jump from September’s rate of 10.1%.

Retail sales rise in October

Official data shows that retail sales staged a partial recovery in October although more recent survey evidence suggests retailers remain relatively pessimistic about future trading prospects.

The latest ONS retail sales statistics revealed that total sales volumes rose by 0.6% in October, following a 1.5% decline during the previous month when shops closed for the Queen’s funeral. Despite this partial rebound, ONS said the broader picture was that sales are still on a downward trend that has been evident since summer 2021 and that volumes remain below pre-pandemic levels.

Survey evidence also highlights the current difficulties facing the retail sector, with the latest Distributive Trades Survey from the CBI showing the net balance of retailers reporting year-on-year sales growth falling from +18% in October to -19% in November. A similar proportion also said they expect sales to fall this month suggesting most firms anticipate little festive cheer this December.

Commenting on the findings, CBI Principal Economist Martin Sartorius said, “It’s not surprising that retailers are feeling the chill as the UK continues to be buffeted by economic headwinds. Sales volumes fell at a firm pace in the year to November, and retailers remain notably downbeat about their future business prospects.”

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