inflation

 

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

 

 

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).

 

 

 

 

 

 

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

 

How can I protect my income when inflation is rising?

How can I protect my income when inflation is rising?

Currently a question that many of our clients are asking is, how can I plan my income when inflation is rising?

We work with many clients at the point of retirement, helping them choose the right investments for their next stage in life. We are also pleased to work with those people as they start the next phase of their lives, helping them manage their investments to ensure they can fund the lifestyle they have always dreamed of in retirement. The impact on inflation is something they are aware of and concerned about.

What is inflation?

Inflation is the rate at which the cost of everyday things like food, transport and electricity increase over time. The Bank of England tracks inflation using the Consumer Price Index, which monitors the prices of hundreds of goods and services. In the latest government figures, the Consumer Price Index rose by 9.4% in the 12 months to June 2022. This is the highest rate for 30 years, and is climbing month on month.

The impact of inflation

The impact of inflation means that your money is worth less over time. For our retired clients, this can be a cause for concern. While they are economically active they may earn more money, through higher salaries or growing their business. Once they are no longer earning a salary, their income tends to come from investments. This means they have a fixed income which is worth less as prices rise.

However the Bank of England has responded to inflation by increasing interest rates, and clients with significant investments will see benefits from this move.

Pensions and inflation

If you are not yet at retirement age, one way of protecting yourself against inflation is to invest your money in a pension. Because these are invested in the stock market and are often long term investments, they tend to grow, despite the short term fluctuations of the market. Between 2015 and 2019, pension funds grew by an average of 7.4% per year – much higher than the average 1.53% inflation over the same period. If you have many years before retirement, it is likely that your final pension pot may be unaffected by the current inflation rate.

What can clients do?

In summary, you may not be able to completely protect your pension and investments against the impact of inflation. But the impact of that on your lifestyle will depend on many factors.

It may be helpful to carry out a full review of your outgoings, to ensure you are budgeting to allow for increases in day to day costs without increases in your pension payments.

Our general advice is always to be aware of the specific terms of your pensions and investments with regards to inflation. This means you can take action based on your own specific circumstances rather than being concerned about headlines. If you would like a review of your current pension to understand the implications of the current inflation rate, please get in touch.

For clients due to retire this year, we can also look at the pros and cons of taking some of your pension as cash, buying an annuity or investing to get a regular income.

 

Because financial health is financial wealth.

 

To book an appointment to talk to us about your financial health, call us on 01332 913006

 

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