Inflation, the cost-of-living crisis and growing warnings that a global recession may well be on the cards are the themes that have dominated the headlines over the past few weeks. April inflation hit 9%, a 40-year high and the second highest inflation rate among the G7 countries[i]. As a result, business and consumer sentiment have started to take a hit, with April’s sentiment index reading even lower than the readings recorded during the 2008 global financial crisis[ii]. Even the housing market’s seemingly unstoppable surge witnessed over the past 12 months has started to cool modestly. Meanwhile, the Government is pressed to do more to alleviate the pain. For example, many have called for a windfall tax on oil and gas companies to help with the cost of living, while others have urged the use of universal credit and a basic rebate to most council tax bands in order to offer targeted support for low-income households.
Chart of the month: The UK GfK Consumer Confidence Indicator
Source: Office for National Statistics, Blend Network
Politics & Economics
- In line with expectations, the Bank of England base rate was increased to 1% from 0.75% on 5 May, the first quadruple back-to-back interest rate hikes in 25 years. Markets expect more rises to follow as a majority of the Monetary Policy Committee felt some degree of further tightening was likely to be needed in the coming months[iii].
- Inflation in the UK hit a 40-year high of 9% in April, up from 7% in March, and is expected to continue to rise this year. According to the Office for National Statistics, three quarters of the rise in inflation in April came from higher electricity and gas bills[iv].
Business
- A combination of surging energy prices, higher taxes, and inflation rise to its highest level in four decades has impacted business and consumer confidence. In April, the consumer confidence index recorded even lower readings than in 2008 financial crisis[v].
- The cost-of-living crisis also put a break on consumer spending[vi]. Retail sales recorded their first decline in 15 months in April, with big-ticket items suffering especially hard.
Real Estate
- While UK house prices continued to advance in April, the pace of growth has started to slow modestly. According to the Nationwide House Price Index, average prices advanced by 12.1% YoY, slightly down from the 18-year high of 14.3% seen in March[vii].
- Despite the softening housing market conditions, reported frenetic activity continues. Rightmove reports that despite the worsening affordability crisis, the average time to sell a property has halved from 67 days in Q2 2019 to just 33 days at the moment[viii].
Equity Markets
- Amid warning that the risks of a global recession have materially increased, stocks continued to take a hit in May. The S&P500 was down by 3% by mid-May following a nearly 9% drop in April, and the tech-heavy Nasdaq saw an even larger decline: over 5% by mid-May following a 13% decline in April[ix]. Meanwhile, cryptocurrencies have seen a large-scale sell-off as part of a wider global flight from riskier investments[x].
FX & Commodities
- Amid the ongoing war in Ukraine and the expectation that the country’s output will decline by more than a third, the US Department of Agriculture has warned that global wheat crop is likely to fall for first time in four years. Global buffer stocks are expected at 267mn tonnes, down for the second year in a row and the lowest level in six years[xi].
- India – the world’s second-largest wheat producer – announced an export ban citing food security risks. As a result of the ban and droughts and floods threatening crops in other producers, world wheat prices have risen by 25% over the past six weeks[xii].
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[i] Source: https://bbc.in/3G49Omo
[ii] Source: https://bit.ly/3lfsxlp
[iii] Source: https://on.ft.com/3MwzJ8u
[iv] Source: https://bbc.in/3wsVmky
[v] Source: https://bit.ly/3lfsxlp
[vi] Source: https://on.ft.com/3Mnz9tP
[vii] Source: Nationwide House Price Index, https://bit.ly/3wP4U8H
[viii] Source: Rightmove House Price Index, https://bit.ly/3Pqwy3Y
[ix] Source: Investing, https://bit.ly/3FQnwZM
[x] Source: https://bit.ly/3yNhbwJ
[xi] Source: FT, https://on.ft.com/3a79abN
[xii] Source: https://bbc.in/3lfJpYW
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