The Covid pandemic may be subsiding, but the new normal might not look the same as 2019. The spectre of inflation has had markets concerned in recent months[i]. According to a recent CNBC survey, wealthy investors are worried about inflation[ii]. Indeed, the survey results revealed that as many as 65% of millionaires are concerned about inflation caused by recent government spending. The UK has seen similar concerns as consumer price inflation hit a two-year high of 2.1% in May, exceeding the Bank of England’s target[iii]. The Bank for International Settlements (BIS) said inflation spike could raise the cost of borrowing to post war highs[iv].
Chart of the month: Household net cash savings
Source: Bank of England[v], Blend Network
Politics & Economics
- Data released in early-June showed that US consumer prices had increased by 5% in the year to May, fastest pace since the summer of 2008[vi]. The 3.8% rise in the core inflation rate, which excludes food and energy prices, was the sharpest increase in nearly three decades[vii]. This led to rising concerns about inflation, not least in the UK[viii].
- According to the Bank of England, since the start of the pandemic in March 2020 up to April 2021 households have saved or repaid debts of £195bn or an average of £14bn a month. This compares with £4.8bn or £0.4bn a month in the 11 months to February 2020[ix]. With approximately 27.8m households in the UK, this means that families have saved an average of just over £7,000 a year or £500 per month since the first lockdown in March 2020, compared with approximately £175 a year or £15 a month in the eleven months prior to the pandemic[x]. A big question for the economic recovery is whether households will splash the cash once restrictions are lifted, providing a consumer-led boost to the economic recovery. According to Bank of England’s chief economist, Andy Haldane, as much as 20% of those savings could be spent before the end of the year[xi].
- According to the latest Purchasing Managers’ Index (PMI) data, the UK’s factories extended their post-lockdown recovery in June and ramped up hiring, but they also faced record inflation pressures due to supply chain issues caused by the pandemic[xii].
- Euro area PMIs came in at their highest on record in June, indicating rapid growth in business activity and offering the latest in a series of positive data surprises. Recent economic data out of the euro zone suggests its recovery is gathering steam[xiii].
- According to the Nationwide House Price Index, the price of the average UK house soared by 13.4% year-on-year in June, the largest increase witnessed in over 17 years. There is a base-effect because in June last year prices had collapsed in the aftermath of the first lockdown and also the stamp-duty holiday contributing to the strength. But despite that the market has maintained significant momentum in recent months[xiv]. That being said, the month-on-month growth has clearly started to ease over the past few months (2.3% in April, 1.8% in May and 0.7% in June).
- Average UK house prices rose by 10.3% year-on-year in Q2. Northern Ireland saw average house prices rise by 14% year-on-year while Scotland saw a 7.1% increase[xv].
- Halfway through 2021, stock markets have been full speed ahead[xvi]. Some of the world’s major indices such as the S&P500, FTSE100, EuroStoxx50 and Germany’s DAX ended June in positive territory for the fifth straight month, both notching their latest all-time high to close out June. The Dow Jones Industrial Average and Nasdaq Composite both were up by more than 12% each on the year to the end of June.
FX & Commodities
- Oil price has continued to swiftly recover from the $22 per barrel levels it fell to in the wake of the Covid-19 pandemic in March 2020 and in late-May reached above $70 for the first time since September 2018[xvii]. Other commodities have followed suit with analysist predicting oil could top $100 as commodities boom shifts away from China[xviii].
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[i] Source: www.theguardian.com/business/2021/may/15/the-fear-that-haunts-markets-is-inflation-coming-back
[ii] Source: www.cnbc.com/2021/06/08/wealthy-investors-are-worried-about-inflation-cnbc-survey-shows.html
[iii] Source: www.bbc.co.uk/news/business-57596298
[iv] Source: www.theguardian.com/business/2021/jun/29/post-covid-inflation-could-push-interest-on-uks-debt-above-100bn-warns-bis
[v] Source: Bank of England www.bankofengland.co.uk/statistics/money-and-credit/2021/april-2021
[vi] Source: www.cnbc.com/2021/06/10/cpi-may-2021.html
[vii] Source: www.cnbc.com/2021/06/10/cpi-may-2021.html
[viii] Source: www.ft.com/content/78dd0115-b54e-4a7b-a68e-32ece50425fb
[ix] Source: www.icaew.com/insights/viewpoints-on-the-news/2021/jun-2021/chart-of-the-week-household-savings
[x] Source: www.icaew.com/insights/viewpoints-on-the-news/2021/jun-2021/chart-of-the-week-household-savings
[xi] Source: www.theguardian.com/business/2021/may/15/the-fear-that-haunts-markets-is-inflation-coming-back
[xii] Source: www.reuters.com/world/uk/uk-factories-ride-demand-boom-price-pressures-hit-record-pmi-2021-07-01/
[xiii] Source: www.cnbc.com/2021/07/01/wall-street-expects-european-stocks-to-outperform-the-us-this-year-heres-why.html
[xiv] Source: www.nationwide.co.uk/about/house-price-index/headlines#tab:Headlines
[xv] Source: www.nationwide.co.uk/about/house-price-index/headlines#tab:Headlines
[xvi] Source: https://uk.investing.com/
[xvii] Source: https://uk.investing.com/
[xviii] Source: www.marketwatch.com/story/oil-could-top-100-as-commodities-boom-shifts-away-from-china-says-top-economist-11625144052