In the news

UK M&A activity drops nearly a fifth in 2023 

UK M&A activity in 2023 fell below 2022 levels as economic headwinds continued to affect the number of deals completed in the year, according to PwC’s latest Global M&A Trends 2024 Outlook. In total, the UK saw 3,628 deals across 2023, compared to 4,362 the previous year, a 17% decline. The Technology, Media and Telecommunications (TMT) sector saw the most activity for 2023 (955 deals), accounting for just over a quarter of total output for the year. 

Gen X impacted by emotional trading 

A survey1 delving into the trading psychology of new traders has revealed that the demographic most likely to have their trading decisions consistently influenced by emotions were 41 to 60-year-olds (Gen X). Over a third (35.4%) of the Gen X group considered emotions to be a significant factor in their trading approach, which compares to 10.1% of the 18 to 24-year-olds surveyed. 

BRICS gets a boost 

BRICS, the alliance of major developing countries, gained five new members this year – Saudi Arabia, Egypt, Ethiopia, Iran, and the United Arab Emirates (UAE). The population of the expanded group is around 3.5bn or 45% of the world’s inhabitants. The combined members’ economies are worth over $28.5tn, about 28% of the global economy. Originally coined as an asset class in 2001, the original members Brazil, Russia, India and China (BRIC), were later joined by South Africa in 2010 to become the BRICS acronym we know today. Following the Russian invasion of Ukraine, many BRICS indexes dropped Russia from their portfolios. 

1City Index, 2024 

News in Review

“Shop price inflation eased to the lowest level since December 2021”

New data from the British Retail Consortium (BRC) has revealed that shop price inflation has reduced to its lowest level in over three years. Recordings for the first week of March show an easing in annual price growth to 1.3%, a considerable reduction on the February reading of 2.5%, and well below the three-month average rate of 2.2%.

It’s lowest reading since January 2022, non-food inflation registered 0.2%, while food inflation tempered from 5% in February to 3.7% in March, it’s tenth consecutive monthly decline.

Chief Executive of the BRC, Helen Dickinson, commented on the latest data set, “Shop price inflation eased to the lowest level since December 2021 last month as retailers continued to compete fiercely to bring prices down for their customers. While Easter treats were more expensive than in previous years due to high global cocoa and sugar prices, retailers provided cracking deals on popular chocolates, which led to price falls compared to the previous month.”

Referencing a new raft of challenges for retailers, as the threat of inflation recedes, Mrs Dickinson continued, “While these figures are good news for consumers, from this month, retailers face significant increased cost pressures that could put progress on bringing down inflation at risk. These costs include a 6.7% business rates rise, ill-thought-out recycling proposals, and new border checks – all at the same time as the largest rise to the National Living Wage on record. The industry needs pro-growth government policy that supports investment and helps keep down prices for households up and down the country.”

Brexit import charges revealed

Following this news from the BRC, concerns were raised last week about how much companies will be paying to import foods from the EU. The Department for Environment, Food and Rural Affairs (DEFRA) has revealed that from the end of April small imports of products including cheese, yoghurt, fish and sausages, will be subject to fees of £29 on individual products and up to £145 for mixed consignments. This fee, which the government plans will pay for ‘world-class border facilities’ is referred to as the ‘common user charge,’ and is scheduled to be levied on plants and plant products and animal products, which will be entering the UK from the EU via the Eurotunnel at Folkestone and the Port of Dover. It is anticipated that the fee will finance new facilities in Kent to prevent the import of animal and plant disease into the country.

Chief Executive of the Cold Chain Federation, Phil Pluck, said the fee will impact food prices and have to be passed on to “either the EU importer, the smaller UK retailer, or the UK consumer.” He added, “Ultimately, this will increase business costs and food prices and potentially lower choices for the shopper.”

Criticising the timing of the new measures, Mr Pluck said that the government had “announced the charges at the last minute, leaving affected businesses little time to revise their commercial arrangements.”

Mortgage approvals on the up

The Bank of England’s latest Money and Credit report has highlighted some positive trends in the mortgage market in February. Net approvals for house purchases reached their highest levels since September 2022 (65,300). A prime indicator of future borrowing, net approvals elevated to 60,400 in February, an increase on the 56,100 recorded the previous month. In the month, remortgaging net approvals also saw an uptick, recording 37,700 approvals, compared with 30,900 in January.

And FTBs snapping up homes

According to Hamptons, first time buyers (FTBs) are very active in the market, with the share of homes being purchased by this group reaching a new record. The latest research shows a third (33%) of properties sold in the UK so far this year were bought by FTBs, up from 29% in 2023 and 17% ten years ago. It seems the increase has been driven by purchases by FTBs in southern England, with 51% of all first timers favouring one or two-bedroom properties, something not seen since 2011. With higher mortgage rates impacting buyers ability to borrow, Head of Research at Hamptons, Aneisha Beveridge commented, “The market continues to be dominated by those who can afford to buy, rather than those who want to.”

Here to help

Financial advice is key, so please do not hesitate to get in contact with any questions or concerns you may have.

The value of investments can go down as well as up and you may not get back the full amount you invested. The past is not a guide to future performance and past performance may not necessarily be repeated.

All details are correct at time of writing (10 April 2024)

The surging costs of retirement

According to the Pensions and Lifetime Savings Association (PLSA)1, a ‘moderate’ standard of living that includes £55 per week on groceries, a two-week all-inclusive holiday, £10 a week on takeaways and £100 a month to take others out for a meal, could cost a single person £31,300 a year, which is £8,000 more than last year. For couples, £43,100 a year is required to live at this standard. 

Minimum, moderate or comfortable  

The PLSA’s Retirement Living Standards report details what levels of income retirees will need to live either a ‘minimum,’ ‘moderate,’ or ‘comfortable’ life in retirement. However, the forecast does not factor in any rent or mortgage payments. 

As well as the cost of a ‘moderate’ life in retirement rising, so has the cost of having a ‘minimum’ living standard, which shot up by 12% from £12,800 a year, to £14,400 for a single person and £22,400 for a couple. 

A ‘comfortable’ standard of living, where there is more financial freedom and some luxuries, could now cost £43,100 per year for one person – a jump from £37,300 a year earlier. This rises to £59,000 for couples to live comfortably. 

Inflation and more 

The increase in inflation, particularly in energy bills and food prices, over the last few years has contributed to the rising costs of retirement lifestyles. Helping family during the cost-of-living crisis, coupled with people’s expectations of living standards, also played a part. 

It’s important not only to focus on your current needs, but to provide for the future and to understand how much you need to save for the standard of living you want in retirement. 

1PLSA, 2024 

The value of investments can go down as well as up and you may not get back the full amount you invested. The past is not a guide to future performance and past performance may not necessarily be repeated. 

Confidence returns

Increased investor confidence in equity funds over the last few months has been evidenced by a leading Index1, with UK investors at their most bullish in almost three years. 

Equity fund inflows reached £2.01bn in January, one of the top ten months on record and the highest since April 2021. In addition, the January Index reported: 

  • US equity funds had record inflows of £1.04bn 
  • European equity funds had their third best month on record with an inflow of £471m 
  • Weak news from China meant outflows from Asia Pacific funds for a ninth consecutive month 
  • ESG funds had record inflows of £1.63bn. It’s likely to be too soon to identify this as a trend after months of negativity 
  • Inflows to safe-haven money market funds slowed to a trickle (£56m) after months of strong buying. 

1Calastone, 2024 

The value of investments can go down as well as up and you may not get back the full amount you invested. The past is not a guide to future performance and past performance may not necessarily be repeated. 

Spring Budget overlooks first-time buyers

It was a disappointing Spring Budget for anyone looking to get onto the housing ladder. There were no announcements on Lifetime ISAs, no changes to Stamp Duty thresholds, no replacement for Help to Buy and the Chancellor had already scrapped plans for 99% loan-to-value (LTV) mortgages after resistance from the banking community. 

A deafening silence 

Coventry Building Society’s Jonathan Stinton said the silence around housebuilding was deafening, adding that the Budget, “could have been an opportunity to present new innovative schemes which help buyers with affordability as well as saving for a deposit – but not even the bare minimum was done. It’s not only incredibly disappointing, it feels like a big mis-step on the Chancellor’s part. First-time buyers are the foundation on which the rest of the housing market stands. Failing to give them proper help is failing to help the rest of the market.” 

Rightmove’s Tim Bannister said, “We had hoped the government would seize the opportunity to help first-time buyers and reform the outdated Stamp Duty system today. Instead, home-movers were left with extremely little and the temporary Stamp Duty thresholds weren’t even made permanent, meaning more will pay higher rates of Stamp Duty next year, unless the government makes them permanent in the autumn.” 

Other measures to be aware of 

There were some housing measures announced in the Budget, but these have bigger implications for private landlords and second homeowners rather than aspiring and current homeowners: 

  • The higher rate of Capital Gains Tax (CGT) will be reduced from 28% to 24% and the lower rate of CGT has been maintained at 18%. It’s worth noting that you only pay CGT on second homes 
  • The Furnished Holiday Lettings tax regime will be abolished – second homeowners can no longer deduct mortgage interest from their rental income or pay lower CGT when they sell 
  • In England and Northern Ireland, Stamp Duty Land Tax (SDLT) Multiple Dwellings Relief (MDR) will be abolished from 1 June 2024. There is an equivalent MDR relief under Land and Buildings Transaction Tax (LBTT) in Scotland and it remains to be seen if the Scottish Government will consider how MDR applies in future. 

As a mortgage is secured against your home or property, it could be repossessed if you do not keep up mortgage repayments. Think carefully before securing other debts against your home. Equity released from your home will be secured against it. 

Economic Review – March 2024

Short-term growth forecasts upgraded

New economic predictions produced by the Office for Budget Responsibility (OBR) suggest the UK economy is set to grow by more than previously expected over the course of the next two years.

Chancellor Jeremy Hunt unveiled the independent fiscal watchdog’s latest forecasts during his Spring Budget delivered to the House of Commons on 6 March. The updated figures predict the economy will expand by 0.8% this year, marginally higher than the OBR’s autumn forecast, while next year’s growth rate was revised up to 1.9% compared to a previous figure of 1.4%. The OBR said this strengthening near-term outlook was partly due to inflation receding more quickly than had previously been anticipated.

The week following the Chancellor’s Budget statement, the latest monthly gross domestic product (GDP) statistics were published by the Office for National Statistics (ONS) revealing that the UK economy returned to growth at the start of the year. The ONS figures showed the economy expanded by 0.2% in January following December’s 0.1% fall, with the rebound driven by strong growth in both the retail and construction sectors.

Data from the latest S&P Global/CIPS UK Purchasing Managers’ Index (PMI) also suggests this recovery has continued across the rest of the first quarter, with March’s preliminary composite headline figure once again coming in comfortably above the 50 threshold that denotes an expansion in private sector output.

S&P Global Market Intelligence’s Chief Business Economist Chris Williamson said, “Further signs of the UK economy having pulled out of last year’s brief recession are provided by the provisional PMI data for March. The survey data are indicative of first quarter GDP rising 0.25% to thereby signal a reassuringly solid rebound from the technical recession seen in the second half of 2023. Business expectations for the year ahead also remain reassuringly lofty by recent standards.”

Lower interest rates “on the way”

Although last month did once again see the Bank of England (BoE) maintain interest rates at their current 16-year high, the Bank’s Governor noted that inflation is “moving in the right direction” for rate cuts.

At its latest meeting, which concluded on 20 March, the BoE’s Monetary Policy Committee (MPC) voted by an 8–1 majority to leave Bank Rate unchanged at 5.25%. The one dissenting voice preferred to see an immediate quarter-point reduction, which meant this was the first time since September 2021 none of the nine-member panel had voted for a rate hike.

The meeting ended the same day ONS released the latest inflation statistics. These revealed that February’s headline annual CPI rate dropped to 3.4% from 4.0% the previous month; this figure was slightly below analysts’ expectations and the lowest reported rate for almost two and a half years.

Speaking just after the interest rate decision, BoE Governor Andrew Bailey described the latest fall in inflation as “very encouraging.” While stressing the Bank needed to see inflation decline further, Mr Bailey did strike a relatively optimistic note on future rate reductions.

Asked whether investors were right to price in two or three cuts over the remainder of this year, Mr Bailey suggested it was “reasonable” for markets to take that view. The Governor added, “We’re not yet at the point where we can cut interest rates, but things are moving in the right direction. I think you know we can say – we are on the way.”

Prior to the MPC’s announcement, a Reuters poll found a majority of economists expect the BoE to begin cutting rates in the third quarter of this year, although a sizeable minority did predict the first cut would be delivered during the second quarter. The next MPC announcement is scheduled for 9 May.

Markets (Data compiled by TOMD)

At the end of March, most major markets closed in positive territory as investors contemplated new data from the US showing the economy grew faster than expected in Q4 2023.

In the UK, the FTSE 100 index closed the month on 7,952.62, a gain of 4.23%, while the mid-cap focused FTSE 250 closed the month 4.36% higher on 19,884.73. The FTSE AIM closed on 743.26, a gain of 0.92% in the month.

On the continent, the Euro Stoxx 50 closed March on 5,083.42, 4.22% higher. In Japan, the Nikkei 225 continued its bull run, closing the month on 40,168.07 a gain of 2.56%. In the US, healthy economic data at month end helped support strength in the market. The Dow closed the month up 2.08% on 39,807.37, meanwhile the NASDAQ closed March up 1.79% on 16,379.46.

On the foreign exchanges, the euro closed the month at €1.17 against sterling. The US dollar closed at $1.26 against sterling and at $1.07 against the euro.

Brent crude ended the month trading at around $86 a barrel, a gain of 5.81%. The price has been supported by falling inventories and output cuts from OPEC+. Gold closed March trading around $2,207 a troy ounce, a monthly gain of 7.76%. Precious metal prices are trending higher despite US Treasury yields advancing.

Consumer sentiment holding steady

Data released last month revealed a stabilisation in retail sales volumes while survey evidence suggests consumer confidence is also holding firm as households become more positive about their finances.

The latest official statistics showed that total retail sales volumes were flat in February, with ONS noting that sales were partly dampened by a reduction in footfall due to the month’s heavy rainfall. February’s figure was, however, stronger than most economists had predicted with the consensus pointing to a 0.3% monthly decline.

Last month’s CBI Distributive Trades Survey also suggests the retail sector’s prospects could be set to improve, with its headline measure of sales volumes in the year to March posting its first positive reading for 10 months. CBI Principal Economist Martin Sartorius said, “The stabilisation of retail sales in March should give some hope that the sector’s downturn is bottoming out” and he added “easing inflation should support retail spending going forward.”

Data from the latest GfK consumer confidence index also suggests consumer sentiment is holding steady, with its headline figure remaining unchanged in March. In addition, the survey revealed that households turned positive about the outlook for their personal finances for the first time in over two years.

Economic inactivity figures rise again

The latest set of employment statistics have revealed another increase in the UK’s economic inactivity rate with over a fifth of all working-age adults now not in work or looking for a job.

Figures published last month by ONS showed that the economic inactivity rate for those aged 16 to 64 years was 21.8% in the November to January period; this represents a slight increase from the previous quarter and also puts the figure above the level recorded a year earlier. This means that, in total, there are currently around 9.2 million people of working-age that are neither in employment nor looking for work.

The growing problem of long-term illness has clearly been a key factor driving this rise, with a report recently published by the Resolution Foundation showing the country is going through its longest sustained increase in the number of working-age people too sick to work since the 1990s.

According to the Resolution Foundation’s analysis, economic inactivity due to long-term sickness has been on an upward trend since July 2019 or the past 54 months. The think tank’s report also revealed that the youngest and oldest age brackets had the highest proportion of those out-of-work due to ongoing illness.

All details are correct at the time of writing (28 March 2024)

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.

News in Review

“Another month of growth for UK car production is welcome news”

New data from the Society of Motor Manufacturers and Traders (SMMT) has revealed that UK car production increased by 14.6% in February, marking the six consecutive month of growth in the sector and the best February performance since 2021.

Almost 80,000 units were manufactured in February, driven by output for the domestic market, which surged 58% in the month, while exports rose 4.6%. The EU was the recipient of the largest proportion of exports (59.9%) followed by the US (14.8%) and China (7.1%).

Electrified vehicles (battery electric, plug-in hybrid and hybrid) represented over a third of output (36.3%) with 29,038 manufactured in the month.

SMMT Chief Executive, Mike Hawes commented on the news, “Another month of growth for UK car production is welcome news, reflecting strong demand at home and around the world for the latest British-built cars. The industry is transitioning from internal combustion engine cars to electrified vehicles, building on the massive investment commitments made last year. The UK industry faces stiff competition, however, as global competitors seek to secure new models and technologies so a commitment to our industrial competitiveness, from all political parties in this likely election year, must be maintained.”

Revised UK growth

Revised official data released last week confirmed the UK fell into a recession during the second half of last year. According to the Office for National Statistics (ONS), revised UK gross domestic product (GDP) reduced by 0.3% in Q4 2023, following a decrease of 0.1% in Q3. The recession that the UK entered last year was a little shallower than first thought. The economy still shrunk for two consecutive quarters, but the total contraction over those six months was revised from 0.5% to 0.4%. Overall, the UK economy grew by 0.1% across the whole of 2023.

Chancellor Jeremy Hunt commented on the data, “I don’t think any of us were expecting the economy to actually grow last year… In fact it did, albeit at a very slow rate… that is a testament to the resilience of the economy but also the fact the government took some very difficult decisions early on to make sure we got the economy back on track.”

And in the US…

The final estimate from the Bureau of Economic Analysis (BEA) has shown that US GDP rose 3.4% in Q4 year-on-year, revised up from 3.2%. According to the BEA the faster growth can be attributed to upward revisions in consumer spending and non-residential fixed investment.

Mortgage Charter makes a difference

Introduced in June 2023, the Mortgage Charter was signed by around 90% of mortgage market participants (48 of the largest lenders) and contained commitments over and above Financial Conduct Authority (FCA) requirements, that lenders elected to adhere to. Commitments include allowing customers to lock in a new deal up to six months before the end of a fixed rate deal. New data released from the FCA has highlighted that between July 2023 and January 2024, around 760,000 accounts have ‘benefited from one or more of the options set out in the Charter.’  

Retail sales flat

With poor weather and financial pressures taking their toll, retail sales flatlined in February, registering zero growth. Falling fuel and food sales were offset by an uptick in clothing sales and positive department store sales, as shoppers stocked up on new clothing for the spring. According to the ONS, sales in household goods also fell. Although the wet weather dampened high street sales, online retailers benefited, especially clothing retailers.

Recently registering the fourth wettest February, according to the Met Office, weather is having a real impact on retail. Director of Food and Sustainability at the British Retail Consortium (BRC), Andrew Opie said that retailers are increasingly having to manage the effects of climate change, which has created more variability in the weather, adding “Without action, there is a real risk of food insecurity due to falling global farm yields and increased threats to global supply chains.”

Here to help

Financial advice is key, so please do not hesitate to get in contact with any questions or concerns you may have.

The value of investments can go down as well as up and you may not get back the full amount you invested. The past is not a guide to future performance and past performance may not necessarily be repeated.

All details are correct at time of writing (3 April 2024)

Investing in an election year

If elections have consequences, as Barack Obama said, then 2024 looks like being a highly consequential year. Some 64 countries are due to hold elections this year (including the US, India, Brazil, Russia and very probably the UK), representing over half of the global population and, in economic terms, half of the world’s gross domestic product (GDP). 

Depending on the outcomes, some of these elections carry significant global implications, influencing not only the geopolitical landscape but also impacting global and regional investment markets. So, how could this year’s elections affect the investment landscape and, by extension, your portfolio? 

What are the investment implications?  

Election years are typically marked by increased uncertainty and speculation because there’s nothing that markets hate more than uncertainty. A change in a country’s leadership or policy direction can affect everything from its stock market to commodity prices, influencing investor sentiment worldwide. 

From a UK perspective, elections in countries such as India, Brazil, and even the European Union, could have wide-reaching implications, and the results will be important in terms of supply chains, access to commodities and trade policies. With 70% of revenues earned by FTSE 100 listed companies derived overseas, domestic shareholders will be keeping a close eye on global election results. It’s impossible to talk about elections in 2024 without discussing the elephant in the room – the US. 

A rematch? 

As the world’s largest economy, the US sets the tone for global economic policies regarding trade, regulation, and fiscal stimulus. Democratic presidents are usually better for the US economy, and for investment returns in general, but given his low approval rating, the re-election of President Joe Biden is far from certain. The race is unlikely to be a straight line, and an election victory for Trump, despite numerous legal issues, could cause ripples worldwide as investors work out the likely implications for the US and indeed the rest of the world. 

What should investors be thinking about?  

Uncertainty about election outcomes and the potential for policy changes often lead to short-term fluctuations in asset prices. And while keeping an eye on political developments is important, there’s no reason to be overly concerned about how an election year could affect your investment over the longer term. It’s important not to be distracted by short-term ‘noise.’ The best way to prepare for potential market volatility is to have a well-diversified investment portfolio that is aligned with your long-term financial objectives and managed to meet your personal financial goals. 

The value of investments can go down as well as up and you may not get back the full amount you invested. The past is not a guide to future performance and past performance may not necessarily be repeated. 

A plan to grow the economy

With the Office for Budget Responsibility (OBR) predicting the UK economy will expand by 0.8% this year, and by 1.9% in 2025, Jeremy Hunt delivered his last Spring Budget ahead of the General Election, highlighting reforms aimed to ensure the tax system is simple, fair, keeps pace with economic developments, and supports public finances. 

Expectations are that the rate of inflation will fall below the Bank of England’s 2% target level in “a few months’ time,” with the OBR forecast showing the government is on track to meet its fiscal rules to grow the economy, reduce debt and halve inflation. 

Changes to National Insurance contributions (NICs) 

In line with speculation, following reductions to NICs announced during the Autumn Statement, the Chancellor announced further changes, specifically a reduction in the main rate of employee NICs by 2p in the pound from 10% to 8%, and a further 2p cut from the main rate of self-employed NICs, meaning the main rate of Class 4 NICs for the self-employed will reduce from 9% to 6%. 

UK savings in focus 

In order to promote more investment in UK assets, the government announced the introduction of a UK Individual Savings Account (ISA) with a £5,000 annual allowance in addition to the existing ISA allowance of £20,000. It will be a new tax-free savings product for people to invest in UK-focused assets (a consultation regarding implementation will be running to 6 June 2024). And a British Savings Bond will be delivered through National Savings & Investments (NS&I) in April 2024, offering a guaranteed interest rate, fixed for three years. 

The 2024/25 tax year JISA (Junior Individual Savings Account) allowance remains at £9,000. 

IHT consultation 

It was announced that there will be a consultation on moving to a residence-based regime for Inheritance Tax (IHT). No changes to IHT will take effect before 6 April 2025, nil-rate band remains at £325,000 and the main residence nil-rate band at £175,000, with taper starting at £2m (estate value). From 1 April 2024, personal representatives of estates will no longer need to take out commercial loans to pay IHT before applying to obtain a grant on credit from HMRC. 

Reviewing non-dom status and Child Benefit 

In addition, it was announced that the non-dom status will be replaced by a new residence-based system from 6 April 2025. The government also announced an intention to move to a residence-based regime for Inheritance Tax (IHT), with plans to publish a policy consultation on these changes, followed by draft legislation for a technical legislation, later in the year. 

Changes to the Child Benefit system included an increase to the threshold for the High Income Child Benefit Charge to £60,000 in April. The rate of the charge will be halved, so that Child Benefit is not lost in full until an individual earns £80,000 per annum, and by April 2026, the Child Benefit system will be based on household rather than individual incomes. 

And pensions… 

The government remain committed to the pensions Triple Lock. The value of the new State Pension will increase to £221.20 per week in April, while the basic State Pension increased to £169.50 per week. 

The value of investments can go down as well as up and you may not get back the full amount you invested. The past is not a guide to future performance and past performance may not necessarily be repeated. The Financial Conduct Authority (FCA) does not regulate Will writing, tax and trust advice and certain forms of estate planning. 

News in Review

“We have turned a corner after the shocks of the past few years”

Inflation has fallen to its lowest level in almost two and a half years, according to data released by the Office for National Statistics (ONS) last week. The Consumer Prices Index (CPI) increased by 3.4% in the 12 month period to February 2024, reducing from the 4.0% figure recorded in January.

Food prices were cited as one of the largest downward contributors to the monthly change, with the annual rates for most types of food products easing between January and February. The largest effect came from price reductions in bread and cereals.

Following the data release, Prime Minister Rishi Sunak commented, “We have turned a corner after the shocks of the past few years,” before adding that “we are in a new economic moment.” Mr Sunak believes that this year will “prove to be the year that the economy bounces back.”

The reduction to 3.4% was slightly lower than economists’ expectations of a 3.5% in the year to February. The better-than-forecast data has led to predictions that the Bank of England (BoE) will begin reducing interest rates in the coming few months.

MPC hold firm

Last week, during their second meeting of the year, the BoE’s Monetary Policy Committee (MPC) voted to retain Bank Rate at 5.25%by a majority of eight to one. One member of the committee preferred to reduce the rate by 0.25 percentage points to 5%.

Interestingly, this was the first meeting since September 2021, that no one on the nine-person committee voted for an increase and two members who voted to raise rates at the last meeting in February, shifted to a ‘hold’ vote this time.

The decision to retain Bank Rate was widely expected, BoE Governor Andrew Bailey commented on the outcome, saying the economy is “not yet at the point” where rates can be lowered, but that things are “moving in the right direction.”

One area of concern seems to be that despite the slowdown in inflation, ‘key indicators of inflation persistence remained elevated,’ according to the BoE, adding that inflation in the services sector ‘remains elevated at 6.1%.’ Something they’ll no doubt keep a close eye on over the next month or so before the next MPC meeting which will conclude on 9 May.

Meanwhile, across the pond…

Last week, the US Federal Reserve held its key interest rate steady, with the Federal Open Market Committee voting to retain the benchmark borrowing rate in a targeted range between 5.25% – 5.5%, as widely anticipated.

The current federal funds rate level is the highest in over 23 years. Officials have implied three quarter-percentage point cuts by the end of 2024, the first reductions since the beginning of the pandemic. The likelihood of these three cuts in 2024 has been derived from the banks ‘dot plot,’ which is essentially a matrix of anonymous projections from the 19 officials who comprise the Federal Open Market Committee (FOMC).

Although choosing not to elaborate on the timing of any reductions, Fed Chairman Jerome Powell said he expects the cuts to come, as long as the data complies, “We believe that our policy rate is likely at its peak for this type of cycle, and that if the economy evolves broadly as expected, it will likely be appropriate to begin dialling back policy restraint at some point this year.”

Global equity markets rallied on the prospect of interest rate cuts in the coming months by the UK, US and Europe.

Consumer confidence…

On Friday, the latest data from GfK showed that overall consumer confidence remained flat in March at -21, mirroring the February reading. The index measuring consumers’ confidence in their personal financial situation over the last year was up one point to -13, while the same measure looking ahead to the next 12 months, increased to a reading of 2, which is 23 points higher than this time last year. This personal finance measure is the first positive reading and the highest score since December 2021. Client Strategy Director at GfK, Joe Staton, commented on the recent data set, “This is welcome news given the challenges faced by Britons of fiscal drag, higher costs for fuel, rising council taxes and utilities eroding any increases in wages or other income. But is there a note of worry this month? Look back to last year and it’s clear the improvements in consumer confidence seen most months since January 2023 have vanished.”

Here to help

Financial advice is key, so please do not hesitate to get in contact with any questions or concerns you may have.

The value of investments can go down as well as up and you may not get back the full amount you invested. The past is not a guide to future performance and past performance may not necessarily be repeated.

All details are correct at time of writing (27 March 2024)