The year has started with a number of rising concerns to the economic outlook, which has reflected in ongoing jittery equity market activity since the start of the month. Fears of inflation and tighter monetary policy have weighted on share prices, rising geopolitical risks of tensions between Russia and Ukraine have darkened the economic outlook, while the ‘cost of living’ crisis continues to weight on consumers. While many such concerns are global, the UK seems to be suffering more than its fair share: according to the IMF’s latest World Economic Outlook published in January, UK GDP is expected to grow by 4.7% this year, down from 7.2% last year, the sharpest slowdown among advanced economies only after France[i].
Chart of the month: CPI Annual Rate, All Items (Index: 2015=100)
Source: Office for National Statistics – Consumer price inflation time series (MM23), Blend Network
Politics & Economics
- Earlier in the month, the Chancellor of the Exchequer Rishi Sunak announced a one-off repayable £200 discount and a rebate on council tax bills as part of a £9.1 billion Energy Bills Rebate to support families across the UK with rising global energy prices[ii].
- The ‘cost of living’ crisis continued to intensify in the UK as inflation jumped to its highest level in almost 30 years at 5.4% in December[iii]. The Bank of England expects the consumer prices index will climb to about 7% by spring[iv], while the International Monetary Fund has warned inflation and Omicron will dent global growth in 2022[v].
Business
- On February 3rd, the Bank of England (BoE) increased its base interest rate to 0.5% from 0.25%, its second increase in just two months and its first back-to-back increase since 2004. The move was supported by a majority of five to four of the bank’s Monetary Policy Committee (the minority wanted an even larger increase to 0.75%).
- According to the OECD, the UK economy is expected to reach pre-pandemic levels at the beginning of 2022. Output is projected to rise by 4.7% in 2022 and 2.1% in 2023[vi].
Real Estate
- The Nationwide House Price Index rose by 11.2% YoY in January[vii], a 7-month high. According to Rightmove, the average asking price of a UK property in January was 7.6% higher than a year ago, the highest annual growth rate recorded since May 2016[viii].
- Price activity reflects robust demand: according to Rightmove, the number of buyers enquiring about homes in January was 15% higher than the same time last year[ix].
Equity Markets
- Following a strong 2021 when the FTSE100 index rose by 14.3%[x], its best annual performance since 2016, and the S&P500 soared by 26.9%[xi] to record its third consecutive year of double-digit returns, 2022 has not started great for equity markets. Fears of inflation and tighter monetary policy are weighing on share prices as tensions between Russia and Ukraine darken the outlook[xii].
FX & Commodities
- Commodities prices have continued to rise and hit new record highs. According to Goldman Sachs, all commodity markets are in a state of unprecedented shortage due to stronger than expected demand and supply shortage due to underinvestment[xiii].
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[i] Source: International Monetary Fund, https://bit.ly/3gy5wrq
[ii] Source: UK Government, https://bit.ly/34JYSvi
[iii] Source: Office for National Statistics, https://bit.ly/3guVVBx
[iv] Source: Bank of England, https://bit.ly/3GCdKt7
[v] Source: International Monetary Fund, https://bit.ly/3HDSkNv
[vi] Source: OECD, https://bit.ly/3LgYs0o
[vii] Source: Nationwide House Price Index, https://bit.ly/3HpxrFP
[viii] Source: Rightmove House Price Index, https://bit.ly/34eBzKf
[ix] Source: Rightmove House Price Index, https://bit.ly/34eBzKf
[x] Source: Investing, https://bit.ly/3Badlx4
[xi] Source: Investing, https://bit.ly/334UTJp
[xii] Source: Financial Times, https://on.ft.com/35LxCx5
[xiii] Source: Market news, https://bit.ly/3uOVESD
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