It would be fair to say that the world was a different world when we published our February Monthly Market Pulse on 23 February. The following day, on 24 February, a war started in the heart of Europe that has so far driven more than 10 million Ukrainians from their homes, created the largest refugee crisis in Europe since the second world war and continues to threaten the entire NATO alliance into a protracted conflict with Russia. In response, the UK and its Western allies have imposed an unprecedented package of sanctions against the Russian economy. Elsewhere, in his latest Spring Budget, chancellor of the exchequer Rishi Sunak announced a £1 billion household support fund for local councils to assist vulnerable people, and other reforms including 0% VAT on home insulation, solar panels, heat pumps and other energy saving materials for homeowners. Additionally, the chancellor Rishi Sunak revealed that the National Insurance threshold is set to increase to £12,570 from July 2022.
Chart of the month: Consumer price inflation series
Source: Office for National Statistics – Consumer price inflation time series (MM23), Blend Network
Politics & Economics
- Earlier this month, the Bank of England rose interest rates for a third time in three months to 0.75%, with analysts expecting rates to hit 1% by the summer and 1.25% by year end. The bank has been under pressure to continue to tighten monetary policy to tame the dramatic surge in inflation that has been intensified by the war in Ukraine.
- The war in Ukraine – that was lunched on the day after we published out February Monthly Market Pulse – has intensified over the past month, claiming thousands of civilians lives and threatening to drag NATO into a protracted conflict with Russia.
- In his Spring Budget last week, the chancellor said forecasts from the Office for Budget Responsibility showed the UK economy would grow by 3.8% this year, by 1.8% next year and by 2.1% in 2024. In October last year, the OBR had forecast growth of 6% for 2022 as the UK economy recovered from the Covid pandemic[i].
- Prices rose by 6.2% in the 12 months to February – up from 5.5% in January and the fastest for 30 years – as fuel, energy and food costs surged[ii]. Since December last year, prices have been rising at their fastest rate since the 1990s and inflation is expected to speed up in April when the energy price cap is increased.
- UK house prices continue to advance unrestrained, and on average are up £29,000 over the last year[iii]. The Nationwide House Price Index rose by 12.6% year-on-year in February, an eight-months high and fast advancing to last summer’s 17-year high.
- In order to put the price increase of the past two years into perspective, Rightmove points out that average asking prices have risen by nearly £40,000 in the two years since the pandemic started, compared to just over £9,000 in the previous two years[iv].
- Following a strong 2021 when the FTSE100 index rose by 14.3%[v], its best annual performance since 2016, and the S&P500 soared by 26.9%[vi] to record its third consecutive year of double-digit returns, 2022 has not started great for equity markets. The war in Ukraine and prospects of escalation beyond the two countries involved has been added to the fears of inflation and tighter monetary policy weighing on share prices. February 24th – the first day of the war – saw a 3.88% decline in the FTSE100 followed by several other daily single-digit declines. March is set to close in negative territory for the major indices – FTSE100, S&P500, Dow Jones and Nasdaq[vii].
FX & Commodities
- Commodity markets were one of the most visible collateral damages of Ukraine war. Brent oil price has risen to more than $100 a barrel since the start of the war and recently rose above $120 as US and UK announced plans to cut off Russian supplies.
- As a result, petrol and diesel prices have also hit new record high. But the chancellor has announced a 5p a litre cut to fuel duty as motorists struggle with record fuel prices.
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[i] Source: https://bit.ly/35azXSs
[ii] Source: Office for National Statistics, https://bit.ly/3iCwdfm
[iii] Source: Nationwide House Price Index. https://bit.ly/37mn34l
[iv] Source: Rightmove House Price Index, https://bit.ly/3i3s2ZM
[v] Source: Investing, https://bit.ly/3Badlx4
[vi] Source: Investing, https://bit.ly/334UTJp
[vii] Source: Investing, https://bit.ly/3CGyT4V