New builds command premium  

New-build properties remain overwhelmingly popular despite a small drop in the number of starts in the past year. 

New home starts slip 

Work was started on 137,800 new-build homes in England during the 2022/23 financial year to the value of £55bn1, which represents a 1.4% year-on-year decline. 

Generally, a new-build house or flat is counted as a ‘start’ from the moment on-site construction begins. For example, when the foundations are laid for a block of 100 flats, that is counted as 100 ‘starts.’ 

New-build premium skyrockets  

The average new-build house price, meanwhile, rose by 13.8% on an annual basis. 

A separate study by the same business has shown that, with the average new build now valued at £425,186, the premium commanded by new homes currently sits at 52%. This astronomical difference follows a 20% increase in the premium over the course of the last year alone. 

London leads the way 

Regionally, the annual change in the number of new build starts ranges from a 13.4% increase in London to a 14% drop in Yorkshire & Humber. In terms of price growth, the South West (16%) and East Midlands (15.9%) were out in front, with London (9.3%) recording the lowest growth. 

1Sourced Franchise, 2023 

As a mortgage is secured against your home or property, it could be repossessed if you do not keep up mortgage repayments 

Economic Review – October 2023

Inflation rate holds steady

The Bank of England (BoE) Governor has described the latest batch of inflation statistics as “quite encouraging,” adding that he expects a “noticeable drop” in the headline rate when the next set of data is released later this month.

Figures recently published by the Office for National Statistics (ONS) revealed that the Consumer Prices Index (CPI) 12-month rate – which compares prices in the current month with the same period a year earlier – held steady at 6.7% in September. This ended a run of three consecutive monthly declines and came in slightly ahead of analysts expectations’ of a further 0.1% fall.

ONS pointed out that the figures did include the first monthly decline in food price levels for two years. However, a sharp rise in fuel costs between August and September was the main factor that prevented the CPI annual rate from declining again. Despite remaining unchanged, though, September’s update does leave CPI below the level forecast by the BoE in early August.

The latest release did also report a fall in core inflation, which excludes volatile elements such as energy, food, alcohol and tobacco, although this decrease was again less than economists had predicted. This measure of inflation, which is typically viewed as a better guide to longer-term price trends, fell to 6.1% in September from 6.2% in August.

Commenting on the consumer prices data release in an interview with the Belfast Telegraph, BoE Governor Andrew Bailey said, “It was not far off what we were expecting. Core inflation fell slightly from what we were expecting and that’s quite encouraging.” The Governor also stressed that he expects to see a “noticeable drop” in the CPI rate when the next set of figures are published in mid-November as last year’s sharp hike in energy prices drops out of the annual comparison.

Economy stages partial rebound

Growth statistics released last month by ONS showed the UK economy returned to growth in August following a sharp decline in July, although forward-looking indicators continue to suggest the outlook remains uncertain.

According to the latest gross domestic product (GDP) figures, the UK economy grew by 0.2% in August following a downwardly revised fall of 0.6% in July. ONS said August’s modest bounce back was partly driven by the education sector, which recovered from two days of industrial action the previous month, along with a boost from computer programmers and engineers.

While analysts typically described the latest GDP data as ‘lacklustre,’ August’s figures are thought to have reduced the possibility of a recession beginning as early as the July to September period. Indeed, ONS noted that the economy would only need to have grown by 0.2% during September to avoid it contracting across the third quarter as a whole.

Data from the latest S&P Global/CIPS UK Purchasing Managers’ Index released towards the end of last month, however, does suggest that business activity across the private sector continues to weaken. The preliminary composite headline Index stood at 48.6 in October, a marginal increase from September’s figure of 48.5, but below the 50 threshold that denotes a contraction in private sector output for the third month running. 

Commenting on the survey’s findings, S&P Global Market Intelligence’s Chief Business Economist Chris Williamson said, “The UK economy continued to skirt with recession in October, as the increased cost of living, higher interest rates and falling exports were widely blamed on a third month of falling output. The overall pace of decline remains only modest, but gloom about the outlook has intensified in the uncertain economic climate, boding ill for output in the coming months. A recession, albeit only mild at present, cannot be ruled out.”

Markets (Data compiled by TOMD)

As October drew to a close, investors focused on major central bank meetings with the Bank of England and Federal Reserve due to meet in early November.

In the UK, the FTSE 100 closed October on 7,321.72, a loss of 3.76%. At month end losses in some mining and energy stocks weighed, impacted by declines in commodity prices following weaker-than-expected factory activity data in China. The domestically-focused FTSE 250 closed down 6.54% on 17,083.05, while the FTSE AIM closed the month on 679.85, a loss of 6.38%. On the continent, the Euro Stoxx 50 ended October on 4,061.12, a loss of 2.72%.

At month end, Asian equities struggled as disappointing activity data from China reignited some concerns over the resilience of the world’s second largest economy. In Japan the Nikkei 225 closed the month on 30,858.85, down 3.14%.

A raft of new data has highlighted resilience in the US economy. Comments from Federal Reserve Chairman Jerome Powell will be closely watched as an indicator of how long interest rates are likely to remain elevated. The Dow Jones Index closed the month down 1.36% on 33,052.87, while the NASDAQ closed the month down 2.78% on 12,851.24.

On the foreign exchanges, the euro closed the month at €1.14 against sterling. The US dollar closed at $1.21 against sterling and at $1.05 against the euro.

Safe haven demand as a result of the Middle Eastern conflict saw gold prices trading higher in the month. Gold closed October trading at around $1,996 a troy ounce, a monthly gain of around 6.76%. With traders wary of any new developments in the conflict and concerns over slowing fuel demand in China weighing, Brent crude closed the month trading at around $85, a loss over the month of 7.41%.

Jobs market continues to cool

Last month’s release of labour market statistics suggests there has been a further softening in the UK jobs market, although earnings data did reveal average pay is now rising above inflation for the first time in almost two years.

The latest figures released by ONS were dubbed ‘experimental estimates’ produced under a new calculation that attempts to account for low response rates to the labour force survey. The new data showed that, although the unemployment rate stayed unchanged at 4.2% during the June to August period, the overall level of employment fell and the rate of economic inactivity rose.

In addition, the estimated total number of job vacancies dropped by 43,000 during the three months to September, the 15th consecutive reported decline. This reduced the number of vacancies to a two-year low of 988,000, although this figure is still significantly above pre-pandemic vacancy levels recorded in early 2020.  

The latest earnings figures also revealed that regular pay rose at an annual rate of 7.8% in the June to August period, higher than the average inflation rate over the same three months. Furthermore, data revisions meant that wage growth actually outpaced inflation in the three months to July for the first time since October 2021.

Retail sales in autumnal fall

Official retail sales statistics reported a sharper than expected decline in sales volumes during September, while more recent survey evidence suggests the current trading environment remains extremely challenging.

Data published last month by ONS revealed that total retail sales volumes fell by 0.9% in September, a much larger decline than the 0.2% fall predicted in a Reuters poll of economists. ONS said it had been ‘a poor month for clothing stores’ with the unseasonable warm autumnal conditions reducing sales of colder weather gear, while the quick pace of price rises had deterred shoppers from buying ‘non-essential goods.’

The latest CBI Distributive Trades Survey suggests sales remained weak last month, with retailers reporting the joint-worst level of sales volumes for October since records began in 1983. The survey also found that retailers do not anticipate a turnaround in fortunes this month, with cost-of-living concerns and higher interest rates expected to continue weighing on consumer spending.

Commenting on the findings, CBI Principal Economist Martin Sartorius said, “As the festive period approaches, the retail sector remains in a perilous position. While slowing inflation should help to bolster households’ income in the coming months, retailers will continue to face headwinds from higher energy and borrowing costs.” 

All details are correct at the time of writing (01 November 2023 )

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

“AI will bring new knowledge, new opportunities for economic growth… and the chance to solve problems we once thought beyond us”

Ahead of this week’s first ever Artificial Intelligence (AI) Safety Summit at Bletchley Park, Rishi Sunak delivered a speech last Thursday on the global responsibility required to address and build a shared understanding of the risks posed by AI. Also, to realise its benefits and identify opportunities for future generations.

During the speech, delivered at the Royal Society in London, the Prime Minister announced the development of a UK-based AI Safety Institute targeted to help the world assess new types of AI, the first organisation of its kind. In addition, Mr Sunak also outlined intentions for the Intergovernmental Panel on Climate Change (IPCC) to be adopted as a model for an expert panel to achieve international consensus on the state of AI science – a prime area for discussion during the summit. A package of measures were also announced to pursue possible AI opportunities, including a £2.5bn investment in computing power for use by businesses and researchers developing AI in the UK.

Summit attendees are expected to include US Vice President Kamala Harris and Google DeepMind CEO Demis Hassabis.

The five key summit objectives set out by the government are:

• A shared understanding of the risks posed by frontier AI and action required

• A forward process for international collaboration on frontier AI safety

• Determining measures that organisations should take to improve frontier AI safety

• Identifying areas for collaboration on AI safety research

• Showcasing how the safe development of AI will enable it to be used positively across the globe.

The national speech from the Prime Minister follows the publishing of a landmark AI paper from the UK government on the capabilities and risks the emerging technology poses. Mr Sunak professed, “AI will bring new knowledge, new opportunities for economic growth, new advances in human capability, and the chance to solve problems we once thought beyond us,” however he did caution, “it also brings new dangers and new fears.”

He continued, “The responsible thing for me to do is to address those fears head-on, giving you the peace of mind that we will keep you safe, while making sure you and your children have all the opportunities for a better future that AI can bring.”

The PM said his genuine belief is, “that technology like artificial intelligence will bring a transformation as far reaching as the industrial revolution, the coming of electricity or the birth of the internet.”

Strong car production growth in September

The latest data from the Society of Motor Manufacturers and Traders (SMMT) shows robust manufacturing growth in September, registering an increase of 39.8%, the highest recorded monthly growth this year and the best September in three years. That represents 88,230 vehicles, 25,105 more than the number rolling off factory lines in August. Although the SMMT state that ‘urgent action’ is needed to make sure the UK and EU trade of electric vehicles remain competitive going into 2024, when tougher rules of origin for batteries come into force.

Chief Executive at the SMMT Mike Hawes, commented on the latest dataset, “A particularly strong period of car making is good news for the UK, given the thousands of jobs and billions of pounds of investment that depend on the sector.”

Bank Rate decision

The next Monetary Policy Committee meeting will conclude on 2 November. There are expectations from a Reuters poll of economists that Bank Rate will be retained at 5.25%, with 61 of the 73 individuals polled believing this will be the case. The remaining 12 economists predict a quarter point rise to 5.50%.

On the continent last week, as widely expected the European Central Bank (ECB) retained their main interest rates.  

In the US, the next Federal Open Market Committee (FOMC) meeting is scheduled to be held on 1 November. The Fed may choose to hold rates at their current 5.25% to 5.5% range. Any indication of potential interest rate intentions into 2024 will be closely monitored.

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 (1 November 2023)

“British pensioners should benefit from British business success”

Chancellor Jeremy Hunt announced measures in his first Mansion House speech aimed at unlocking billions of pounds of extra pension cash to support the economy. 

According to the government, the Mansion House Reforms aim to secure the best possible outcome for pension savers, whilst strengthening the UK’s position as a leading financial centre. This is to be achieved through an agreement with pension providers to put 5% of their investments into early-stage businesses in the biotech, fintech, life sciences and clean technology sectors by 2030. The reforms are estimated to provide a £1,000 a year boost in retirement to the typical earner who starts saving at 18. 

Mr Hunt stated, “British pensioners should benefit from British business success. By unlocking investment, we will boost retirement income by over £1,000 a year for a typical earner over the course of their career. This also means more investment in our most promising companies, driving growth in the UK.” 

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. 

Your safety net

When faced with the unpredictability that life brings, it is comforting to have the support of protection cover. 

Increased household bills, mortgage and rent costs, mean that protection is more important than ever right now but, in response to these challenging conditions, some households are considering reducing their level of protection – leaving themselves vulnerable to financial shocks. 

It may seem tempting to save a few pounds by cancelling or postponing taking out cover but there is a risk that, should the worst happen, you will be left in a difficult financial position. Have you considered how you would be able to afford your monthly outgoings if your family were to lose the income of the primary earner through death or illness? 

Unique needs 

Protection is an essential part of long-term financial planning for everybody. Having the right insurance cover for your unique needs is an indispensable financial safety net for you and your loved ones. 

News in Review

“The near-term outlook for prices is now more mixed”

The latest UK inflation data for September was released by the Office for National Statistics (ONS) last week, disclosing that the overall Consumer Prices Index (CPI) rate unexpectedly remained at 6.7%, ending three consecutive monthly declines. This clearly exemplifies that the battle with inflation is still at play, and at 6.7% remains the highest of any major advanced economy.

An increase in motor fuel prices during the month was a prime contributor preventing a decline in the rate. Meanwhile, the largest downward contributors during the month were food and non-alcoholic beverages, where prices fell by 0.1% on the month for the first time since September 2021, according to ONS, led by soft drinks and dairy produce.

Lead Economist at the Confederation of British Industry (CBI) Alpesh Paleja commented on the data, “Inflation has once again surprised on the upside by staying put in September. While we expect it to resume falling in the months ahead, the near-term outlook for prices is now more mixed. The recent rise in global oil prices may mean that the path back down is bumpier.”

Looking ahead, with the next Bank of England (BoE) Monetary Policy meeting in early November, Paleja added “It’s unclear if today’s data calls time on further rate rises, but either way, it’s still very likely that interest rates are close to their peak, with the stance of monetary policy now judged to be restrictive. The Bank has signalled that rates are unlikely to be cut anytime soon.”

Policymaking “reset” required according to think tank

Last week the Resolution Foundation said the British government should consider increasing the Bank of England’s inflation target from 2% to 3% in the future. Saying a policymaking “reset” was required. Research Director at the Resolution Foundation James Smith elaborated, “This reset would ensure we can support the economy in bad times and fix the fiscal roof when the sun eventually arrives.” The report from the leading think tank highlighted that reform of the BoE and Treasury’s economic toolkit was required to avoid years of rising debt or austerity.

Forecasting faux pas

The Office for Budget Responsibility (OBR) is due to publish the next set of economic forecasts alongside Jeremy Hunt’s Autumn Statement on 22 November. However last week the financial watchdog, in its Forecast Evaluation Report, admitted to making ‘genuine errors’ in its March 2021 and March 2022 forecasts by underestimating the impact of the pandemic and the invasion of Ukraine. OBR stated that the intensity and ramifications of price spikes, and state support schemes, had been overlooked and it had also ‘overestimated the level of economic activity’. Accordingly, the government borrowed over £29bn more in 2022-23 than the OBR had predicted in March 2022. Although ‘unforecastable shocks’ impacted the accuracy of the forecasting, the OBR acknowledged, ‘some differences are due to genuine errors, which would have been corrected before the forecast was finalised if we had spotted them.’

Warm weather impacts retail sales and consumer confidence takes a tumble

ONS statistics released on Friday showed the joint warmest September on record had a knock-on impact on retail sales, as people chose not to purchase colder weather attire as temperatures held firm. Economists had expected a 0.2% fall in sales volumes last month, however a 0.9% reduction was reported. While sales of non-essential goods were subdued, fuel sales rebounded, registering 0.8% growth in the month, following a 1.0% fall in August. Food sales also improved, rising 0.2% in September.

Consumer confidence has taken a tumble in October according to the latest GfK monthly measure, as households become more anxious about the prospects for the economy and their personal finances. The overall index gauge of consumer optimism fell to a three-month low of -30 in October, down from September’s reading of -21. Client Strategy Director at GfK, Joe Staton commented on the decline in confidence, “This sharp fall underlines that the cost-of-living crisis… the fierce headwinds of meeting the accelerating costs of heating our homes, filling our petrol tanks, coping with surging mortgage and rental rates, a slowing jobs market and now the uncertainties posed by conflict in the Middle East, are all contributing to this growing unease.”

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 (25 October 2023)

Time to crackdown on ‘finfluencers’

Influencers who generate content on financial topics are rapidly rising in popularity on social media, having been dubbed ‘finfluencers.’ 

The good news is that finance is becoming more accessible and appealing to younger generations through bite-sized, more light-hearted formats. Coupled with a lack of financial education in their school years, Gen Z and millennials are increasingly turning to finfluencers to improve their financial education and boost their levels of financial literacy. Unfortunately, this demand is not always being met by those qualified or experienced enough to educate others. 

City watchdog involvement  

The Financial Conduct Authority (FCA) is working with the Advertising Standards Authority to help educate influencers and consumers about the risks involved in promoting financial products. 

Sarah Pritchard, FCA Executive Director, Markets said, “We’ve seen more cases of influencers touting products that they shouldn’t be. They are often doing this without knowledge of the rules and without understanding of the harm they could cause their followers. We want to work with influencers so they keep on the right side of the law, as this will also help protect people from being shown scams or investments that are too risky.” 

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. 

Residential Property Review – October 2023 

Conditions remain challenging  

The residential sales market continues to be challenging, according to the latest UK Residential Survey by the Royal Institution of Chartered Surveyors (RICS), with demand, sales, instructions, and prices remaining in negative territory. 

At a national level, new buyer enquiries recorded a net balance of -39% in September, which although weak, is marginally less negative than the previous month’s reading of -46%.  

The new listings headline net balance was -17% in September (compared to -26% in August). Agreed sales remain firmly negative, with a national net balance of -37%, but this reading is less downcast than readings of -46% and -45% seen in August and July respectively. 

Looking at twelve-month sales expectations, the outlook is more positive, with a net balance of +3% (up from -5% last time) signalling a much more stable trend in sales volumes emerging over the year ahead. 

Rental properties receive 25 tenant enquiries  

Over the last two years, average rental prices have continued to rise and there have been more people looking to rent homes than there have been properties available. 

According to Rightmove, the number of tenants looking to move now, compared to 2019, has increased by more than 40%, while the number of available homes to rent has dropped by 35%. Because of this mismatch, letting agents are receiving an average of 25 enquiries from prospective tenants for every home available to rent. This has risen from eight enquiries per property in 2019 and is five more than in May of this year. 

Rightmove’s Tim Bannister commented, “The number of new rental properties coming to the market is now at its highest level since the end of last year. While it is likely that there is some way to go before this filters through to rental prices, if the improving trend between supply and demand continues, we could start to see the pace of yearly rent rises slow more significantly than it has been.” 

BoE concerns over longer mortgage terms 

Consumers are taking out longer mortgages to cope with higher interest rates and living costs, potentially storing up debt troubles in future, the Bank of England (BoE) has said. 

According to the central bank’s Financial Policy Committee (FPC), the proportion of mortgages lasting 35 years or more has increased from 4% in the first three months of the year to 12% in the second quarter. The FPC said that longer mortgages account for a small share of total mortgages and ‘Such lending will be bound by Financial Conduct Authority responsible lending rules requiring lenders to take account of future changes to income and expenditure, such as the borrower retiring, where that is expected to happen during the mortgage term.’ 

The UK has a relatively short-term mortgage market compared with some countries, including USA, where the average mortgage term is 23.3 years. 

All details are correct at the time of writing (19 October 2023) 

As a mortgage is secured against your home or property, it could be repossessed if you do not keep up mortgage repayments 

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. 

Commercial Property Review – October 2023

Industrial and warehouse space in demand  

New analysis has highlighted that the most in-demand UK commercial property sector currently is industrial/warehouse space, as companies look to facilitate and improve their ability to deliver online purchases to customers as efficiently as possible.  

According to data from Sirius Property Finance, buyer demand for hospitality and leisure assets continues to be subdued. As cost-of-living pressures weigh on consumers’ pockets, many are choosing to tighten up their household spend on leisure and hospitality pursuits, dampening investors’ appetite for space. 

Warehouse and industrial space remain in “rude health” according to Nicholas Christofi, Managing Director of Sirius Property Finance, who added, “It’s the one corner of commercial property that thrives in partnership with the internet as more and more businesses look for ways to fulfil the logistical requirements of online retail.” From a regional perspective, the West Midlands is seeing the highest demand with 43.2% of listed stock sold subject to contract. The largest quarterly uptick in demand was from the South West, at 3.8%.  

Office space demand in England is registering 27.6%, a quarterly fall of 2.7%, while retail space demand is 23.5%, a quarterly reduction of 0.9%. Looking at office and retail space, Christofi highlighted that although demand is subdued, “an awful lot of thought is going into how to reimagine the way such spaces are used and how to bring vitality back to what was, not so long ago, a vital part of our nation’s ecosystem. For savvy investors and equally savvy developers, the opportunities presented by this evolution are immeasurable and it’s truly exciting to see what our relationship with retail and office space becomes.” 

Buy-to-let landlords focus on commercial property 

For buy-to-let landlords disillusioned by lacklustre returns and high taxes, new research from specialist lender Shawbrook, shows an enhanced interest in commercial property for those looking to diversify their investments away from residential assets. 

Almost a fifth (19%) of landlords are contemplating commercial property investment, while over a third (35%) who already own commercial property within their portfolio are looking to expand their assets in this area. This comes at a time when the high street focus is on local independent shops, which Shawbrook says is emphasising ‘the importance of good commercial properties in towns and cities.’ Accordingly, those with larger property portfolios are more likely to have already entered the commercial sector as landlords seize the opportunity to support communities.  

Managing Director of Real Estate at Shawbrook, Emma Cox commented on the trend, “Fluctuating prices and high borrowing costs are hampering confidence in the residential property sector… The increase in workers returning to offices and the evolution of local high streets are two examples of areas where landlords will be seeking opportunities to invest, and those who already own commercial properties will be looking to add more.  

She continued, “Landlords could become the unsung heroes of the high street, with many planning to support their local communities by injecting new life into commercial properties and retail units.” 

Realistic pricing and growth prospects motivate investors 

Savills most recent Market in Minutes, analysing the UK commercial property market, has outlined that although interest rates aren’t expected to start falling until the third quarter of 2024, ‘the fact that investors can now start to believe that the next move is downwards will be important for market pricing and activity over the next six months’.  

Their investment sentiment survey highlighted that 80% of respondents plan to invest in UK commercial property during the next 12-month period, motivated by realistic pricing versus other markets and growth prospects.  

Those sectors where potential purchases can appreciate the combination of yield strengthening and robust rental growth prospects will experience pricing recoveries first. Savills believe prime logistics and office space in the West End of London to ‘lead the recovery phase of this cycle.’  

The most notable downward shift in sentiment was evident with Central Business District (CBD) office space. When surveyed in 2022, half of investors intended to deploy capital into that sector, with only 29% saying the same in the 2023 survey. Despite the challenges the office sector has faced, Savills anticipate change as, ‘it becomes more widely recognised how strong the prime office market actually is.’ 

All details are correct at the time of writing (19/10/23) 

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

“The UK economy is holding up but remains in a precarious state”

The most recent data from the Office for National Statistics (ONS) highlighted a modest 0.2% expansion in August, following a sharp 0.6% reduction in July. The monthly growth was in line with expectations from a Reuters poll of economists.

Contributors to the growth experienced in August included a 0.4% rise in services output, which offset a decline in manufacturing, and the adverse effect of the US TV and film writers’ strike, which has impacted elements of the British film industry.

The return to growth has fuelled expectations that Bank Rate may be held unchanged at the next Monetary Policy Committee in early November. Jeremy Hunt said the data demonstrated that the UK economy “is more resilient than expected.”

The bigger picture remains one of sluggish growth, with Head of Research at the British Chambers of Commerce David Bharier, commenting on the data, “The UK economy is holding up but remains in a precarious state.”He continued, “The production sector in particular has seen worrying data revisions showing stark monthly falls in growth.”

“We’re above the Bank of England estimate”

During the annual World Bank and International Monetary Fund (IMF) conference in Marrakech last week, the IMF outlined its latest forecast, which showed the UK would be the slowest-growing Group of Seven (G7) nation in 2024. They predict the UK economy will grow by 0.5% this year, surpassing a previous estimate of a 0.3% reduction. However, the IMF expects the UK will have the highest inflation and slowest growth next year of any G7 economy, lagging Japan, Canada, Italy, USA, France and Germany.

The Treasury felt the IMF’s assessment was too pessimistic, saying that recent revisions to UK growth had not been factored into the IMF’s report. Pierre Olivier Gourinchas, Chief Economist at the IMF responded, “We’re above the Bank of England estimate [for growth] for next year, so I don’t think we are particularly pessimistic. I think we’re trying to be honest interpreters of the data.”

‘Navigating Global Divergences’

The IMF bi-annual outlook entitled ‘Navigating Global Divergences’ retained its global growth forecast for 2023 at 3.0%, lowering to 2.9% for next year. These levels of growth come in under the historical (2000–19) annual average of 3.8%. As policy tightening measures weigh, the IMF expects advanced economies to slow to 1.5% this year and 1.4% next, while developing economies and emerging markets are expected to record growth of 4% this year and next.

The report highlights that although signs of economic resilience presented earlier in the year, efforts to reduce inflation continue to ‘cool economic activity.’ Regional divergences to global growth prospects remain, as many areas struggle to return to pre-pandemic output levels.

“A new cloud”

Referring to the conflict in Israel and Gaza, Kristalina Georgieva IMF Managing Director said the organisation was keeping a close eye on the fast-evolving situation. And although it’s prematureto fully quantify the impact of the conflict, it was “a new cloud on not the sunniest horizon for the world economy.”  She continued, “We are experiencing severe shocks that are now becoming the new normal for a world that is weakened by weak growth and economic fragmentation.”

A crucial quarter for retail

As the ‘Golden Quarter’ for retailers gets underway, data from the British Retail Consortium (BRC) has shown a slowdown in volumes during September (2.2% versus growth of 2.7% in August). Below the 12-month average of 4.2%, it seems that the warmer weather during September deterred shoppers from stocking up on new autumnal attire.

Pay overtakes inflation

Average pay growth has risenrose above inflation for the first time in almost two years, signalling a possible easing to the squeeze on living costs. According to official figures from ONS, wages rose by 7.8% between June and August, which is higher than average inflation over the same three months. There continues to be a gap between public and private sector pay – wage growth for public sector workers reached 6.8% between June and August, the biggest increase since comparable records began in 2001; whereas the average pay rise for private sector employees was 8%.

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 (18 October 2023)