News in Review

“We have to do everything we can as a government, as a country, to support the Bank of England in their mission to squeeze inflation out of the system”

New gross domestic product (GDP) figures released last week show the UK economy is estimated to have grown by 0.2% in April, following a fall of 0.3% the previous month, according to the Office for National Statistics (ONS). The latest data also revealed that GDP rose by 0.1% in the three months to April.

The service sector was the main contributor to the uptick in growth, expanding 0.3% in the month, with consumer-facing services experiencing an especially large boost, growing 1.0% in April, following a fall of 0.8% in March. Robust trade in bars and pubs helped support growth in the sector. Meanwhile, growth in the construction sector faltered, falling 0.6% in April (following 0.2% growth in March) as rising interest rates and mortgage costs weigh on sentiment. Production output registered a 0.3% fall in growth during the month, following growth of 0.7% the previous month.

According to Chancellor Jeremy Hunt, the overall GDP figures demonstrate an “underlying resilience”, although he did caution that inflation remains a “big issue,” for the country, before adding, “We have to do everything we can as a government, as a country, to support the Bank of England in their mission to squeeze inflation out of the system, and that is our primary focus.”

Fed and ECB take their next steps

As widely expected, the Federal Reserve kept US rates unchanged at their meeting last week, the first time since March 2022 that the Fed concluded a meeting without raising rates. However, there are clear signals of potential increases ahead, with the majority of Fed officials anticipating a climb in rates from their current level of 5.00% – 5.25%, with expectations of two more hikes by year end. The central bank released a statement following the meeting concluding, ‘Holding the target range steady at this meeting allows the Committee to assess additional information and its implications for monetary policy.’

The news came just after US inflation data showed that the rate fell to 4% over the 12 months to the end of May, down from 4.9% in April. The 11th consecutive month that price increases have eased, price reductions to eggs, petrol and furniture helped cut inflation to less than half of its peak a year ago.

On the continent, the Governing Council decided to raise the three key European Central Bank (ECB) interest rates by 25 basis points on Thursday, in an effort to return inflation to its 2% medium-term target in a ‘timely manner.’ Headline inflation is expected to average 5.4% this year, before tempering to 3.0% next year. The move was in-line with expectations. With the main rate now sitting at 3.5%, the ECB has hiked rates at eight consecutive meetings since July last year. The benchmark rate is at its highest in 22 years. Christine Lagarde, ECB President indicated that a further rate hike next month was “very likely,” before adding, “We are not thinking about pausing,” which aligns with earlier comments saying the central bank still had “ground to cover” in its efforts to sufficiently restrict interest rates.

NI deadline extended to 2025

Last week the government announced a further extension for people to fill in gaps in their National Insurance (NI) record, which may increase their State Pension entitlement. Already extended to 31 July 2023, the further extension to 5 April 2025 has been applied to give people more time ‘to properly consider whether paying voluntary contributions is right for them and ensures no-one need miss out on the possibility of boosting their State Pension entitlements.’ Financial Secretary to the Treasury, Victoria Atkins, commented on the announcement, “With the deadline extended, there is no immediate rush for people to complete gaps in their record and they will have more time to spread the cost.”

Homeowners risk raiding savings to cover mortgage costs

The Institute for Fiscal Studies (IFS) released analysis last week that indicates the surge in mortgage costs will result in almost three million homeowners wiping out their savings to meet unexpected expenses of around £2,000. In addition to dipping into savings, the think tank expects people to resort to borrowing on credit cards, taking out personal loans, or asking friends and family to provide financial support.

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 (21 June 2023)

News in Review

“The Atlantic Declaration sets a new standard for economic cooperation”

Rishi Sunak made his first trip to the White House as Prime Minister last week. His whirlwind two-day visit was meeting-filled, with US President Joe Biden saying that “important and positive discussions” had taken place “to deepen our bilateral economic relationship and expand our cooperation to shape the challenges and future for the remainder of this century.”

On Thursday an ‘Atlantic Declaration’ was signed, pledging agreements on a series of mini deals covering areas such as data protection, Artificial Intelligence (AI), critical minerals for electric car batteries, clean energy, easing trade barriers and closely aligning defence strategies. The UK government hailed it a ‘Declaration for a Twenty-First Century US-UK Economic Partnership,’ with the objective to ensure that ‘our unique alliance is adapted, reinforced and reimagined for the challenges of this moment.’

The agreement outlines the purposeful and coordinated action to deepen the transatlantic partnership across five pillars:

Building the clean energy economy of the future

Partnering on an inclusive and responsible digital transformation

Advancing cooperation on economic security and technology protection toolkits and supply chains

Ensuring US-UK leadership in critical and emerging technologies

Strengthening the alliance across defence, space and health security.

Mr Sunak highlighted that $17.5bn of new US investment had been committed to the UK during the trip and commented, “The Atlantic Declaration sets a new standard for economic cooperation, propelling our economies into the future so we can protect our people, create jobs and grow our economies together.”

The Prime Minister followed this in his keynote speech opening London Tech Week, stating his goal for the UK “is to retain our position as one of the world’s tech capitals… and make this the best country in the world to start, grow, and invest in tech businesses.”

Eurozone enters recession

Official data released last week showed that the eurozone slipped into recession early in 2023. In Q1, economic output in the 20-country zone reduced by 0.1%, following a 0.1% contraction in Q4. A technical recession is typically defined as two consecutive quarters of negative economic growth in real GDP. The combination of high inflation, monetary tightening, energy shocks and the war in Ukraine, tipped the eurozone into a shallow recession, according to revised data from the EU’s statistics office. The report highlighted mixed country performances across the region, with southern European economies such as Portugal, Italy and Spain registering strong growth rates, while the Netherlands and Germany shrank. France posted mild growth.

The European Central Bank’s (ECBs) next monetary policy meeting is due to take place on Thursday 15 June.

House prices register first annual fall in 11 years

According to the Halifax House Price Index of May, although house prices were largely unchanged in the month, the annual growth rate reduced to -1.0%, marking the first time since 2012 that house prices have fallen year-on-year. According to the Index, the average UK property now costs £286,532, compared to £286,662 in April. From a regional perspective, the figures show that house prices in the south of England remain under the greatest pressure, while Wales is the only region of the UK where house price growth didn’t weaken. Annual growth for Northern Ireland was 1.5%, down from 2.7% the previous month and in Scotland, annual growth was 1.3% (down from 2.2% in April).

Kim Kinnaird, Director at Halifax Mortgages, commented on the most recent dataset, “As expected the brief upturn we saw in the housing market in the first quarter of this year has faded, with the impact of higher interest rates gradually feeding through to household budgets, and in particular those with fixed rate mortgage deals coming to an end.”

Looking ahead, with inflation remaining high, Ms Kinnaird added, “Markets are pricing in several more rate rises that would take Base Rate above 5% for the first time since the start of 2008. Those expectations have led fixed mortgage rates to start rising again across the market. This will inevitably impact confidence in the housing market as both buyers and sellers adjust their expectations, and latest industry figures for both mortgage approvals and completed transactions show demand is cooling. Therefore, further downward pressure on house prices is still expected.”

Here to help

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

All details are correct at time of writing (14 June 2023)

We speak your language

Financial jargon can be confusing and overwhelming. A new study¹ has revealed that seven in ten UK adults are puzzled by financial jargon.

Age gap

The research also found that those aged under 25 are least likely to feel puzzled by financial jargon, with around half (52%) of those aged 18 to 24 stating this, compared to 69% across all age groups. However, there may be an explanation as to why this age group are less confused by financial jargon – they simply might not have heard of certain financial products or terms. For example, less than two thirds of UK adults (61%) in this age group report hearing the term ‘pension’ compared to 97% of those aged 55 and above. In contrast, 18 to 24-year-olds are the group most likely to be aware of the term ‘ESG fund’ (Environmental, Social and Governance).

But even if you have heard a term, it doesn’t necessarily show that you understand its meaning. Just 61% of people who are aware of an ‘ESG fund’ feel confident of its meaning.

Lost in translation

One of the biggest challenges when it comes to financial jargon is that it often feels like a language unto itself. Even if you’re a skilled communicator in other areas, financial terminology may use specialist jargon that can leave you feeling lost.

Ultimately, it’s important to remember that financial jargon is a tool for communicating complex concepts and ideas. We can explain everything you need to know in plain English. Get in touch – whatever your age!

¹Aviva, 2022

Don’t risk living without home contents insurance

One in five 18 to 24-year-olds plan to cancel their home contents insurance at renewal to save money, according to new research¹.

Risky game

As well as highlighting current cost-of-living concerns, the statistic reveals a worrying picture for young people who plan to abandon protection.

Home contents insurance can be a shrewd financial investment because it protects you from the worst-case scenario of having to replace costly contents, maybe all at once.

Cost effective

With policies starting from just over £1 a week, the expense is low in proportion to the peace of mind that home contents insurance provides.

Indeed, the average price paid for home insurance has fallen to its lowest levels in at least a decade, according to the Association of British Insurers (ABI)².

Get advice

Before you ‘opt out’ of your home contents insurance, it is helpful to think of the bigger picture and develop a plan to balance all your financial commitments.

¹GoCompare, 2023, ²ABI, 2023

Transferring wealth in the way you want

With the coming years set to see record flows of assets pass down the generations, the thorny issue of wealth transfer has inevitably become an increasingly important financial topic. Seeking professional advice is a crucial step that can ease any inheritance planning anxieties and facilitate the transfer of assets in the way that you want.

‘Great wealth transfer’

The next three decades are set to witness the largest ever intergenerational transfer of wealth as baby boomers pass on assets to their heirs. Analysts have dubbed it the ‘great wealth transfer,’ with trillions set to cascade down the generations.

Intergenerational mismatch

A new survey¹, however, highlights baby boomer concerns about how their money may ultimately be spent. According to the research, a third of baby boomers are reluctant to pass wealth to someone whose attitude to money differs from their own; additionally, Gen Z were found to be much more likely to adopt a short-term financial outlook than their forebears. Researchers fear this disparity in attitudes could therefore impact older generations’ wealth transfer decisions.

Bridging the divide

While such differences could create intergenerational conflict, we can help alleviate any issues by building cross-generational connections and ensuring any asset transfer is conducted in a way that meets your specific needs. Developing relationships with your beneficiaries to ensure younger generations will receive financial decision-making support can create invaluable peace of mind for both you and your heirs.

Inheritance options

A range of options are available for people looking to transfer wealth, with lifetime gifting amongst the popular methods of passing on money. Complexities with Inheritance Tax and rules in establishing trusts, though, mean sound advice is critical in order to adopt the most efficient approach.

Here to support you

All the evidence suggests developing strong relationships is key to the success of intergenerational financial planning. So get in touch and, with our support, you and your family can work towards determining and achieving your inheritance planning objectives.

¹abrdn, 2023

News in review

“America can breathe a sigh of relief”

Last Thursday, the US Congress approved a deal to lift the country’s borrowing limit, thereby averting a crisis mere days before the country was due to default on $31.4tn of debt.

The bipartisan deal passed through the Senate by 63-36, after navigating the Republican-controlled House of Representatives by 314-117 a day earlier. The deal gained support from both sides, though some hardliners tried to vote it down in the hope of forcing deeper spending cuts and more stringent reforms. President Joe Biden signed the deal into law on Saturday.

The deal allows the Federal government to borrow money until after the next presidential election in November 2024. This money is needed for paying for Federal employees, the military, Social Security and Medicare, as well as interest on the national debt and tax refunds.

The final agreement also includes deals on defence, COVID funds and taxes, some of which proved more controversial. Non-defence spending will flatline next year, with a 1% rise in 2025; unspent COVID funds will be returned to the Federal government and an $80bn budget has been agreed for the next decade to help the Internal Revenue Service (IRS) enforce last year’s Inflation Reduction Act.

If the deal had fallen through, the government’s inability to borrow more money would have had a severe effect on the US economy, with far-reaching ramifications for the global economy. Senate Majority Leader Chuck Schumer said, “America can breathe a sigh of relief. For all the ups and downs and twists and turns it took to get here, it is so good for this country that both parties have come together at last to avoid default.”

UK retail spending

Retail sales in the UK rose 3.7% on a like-for-like basis in May 2023 from a year ago, according to data released by the British Retail Consortium (BRC) on Tuesday. This is slower than the 5.2% growth recorded in April despite three public holidays. Analysts suggest soaring food prices prompted shoppers to rein in spending on non-essential items.

BRC Chief Executive Helen Dickinson said, “With consumer confidence still recovering from record depths, and continued tightening of household incomes, we are unlikely to see substantial sales growth in the coming months.”

Strong car sales

New car registrations rose by 16.7% year-on-year to reach 145,204 in May 2023, according to the Society of Motor Manufacturers and Traders (SMMT). This was the tenth successive month of growth, though sales remain 21% below pre-pandemic levels.

The figures are evidence of easing supply chain issues, according to Mike Hawes, Chief Executive of the SMMT. He commented, “After the difficult, COVID-constrained supply issues of the last few years, it’s good to see the new car market maintain its upward trend.”

Transactions take a tumble

The UK is experiencing a marked fall in housing transactions, figures released last week by HM Revenue & Customs seem to suggest. The provisional non-seasonally adjusted estimate of the number of UK residential transactions in April 2023 was 67,220, 32% below the total recorded a year earlier and 29% lower than in March 2023.

Amid this slowdown and fears of a further Bank Rate rise in June, hundreds more mortgage deals have been withdrawn by lenders. Compared to 5,385 residential mortgage deals available on 22 May (two days before the inflation data was released), there were 4,686 available on Monday.

Also on Monday, the average rate on a new two-year fixed mortgage was 5.72%, according to Moneyfacts, half a percentage point higher than at the start of May. In response to rising rates, record numbers of mortgage applicants are now opting for loans of over 30 years in an attempt to make their monthly payments more affordable.

Here to help

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

All details are correct at time of writing (7 June 2023)

Crystal clear decision-making

In today’s increasingly complex and challenging world, financial advice to help people navigate through life’s journey is more important than ever; a point vividly highlighted by a new study from the Financial Services Compensation Scheme (FSCS)¹ which raises fears over the consequences of a worrying financial ‘advice gap’.

Scammers’ paradise

FSCS research shows that almost two-thirds of UK adults with savings, investments or a mortgage have not sought regulated financial advice in the last five years. Caroline Rainbird, Chief Executive of FSCS, warned that this financial ‘advice gap’ is a concern, as it puts people “at greater risk of making poor decisions about their money” by leaving them open to scammers who “prey on people’s fears and exploit any gaps in their financial knowledge.”

We can support you

This warning highlights the key role we can play in helping people like you take control of your finances. Expert advice provides clarity to financial decision-making and thereby works towards ensuring people avoid taking any undue risks or make costly mistakes with their hard-earned cash.

Advice is for all

Another worrying finding from the FSCS survey was that over half of all adults who hold a financial product believe professional advice is just for the wealthy. This is clearly a commonly held misconception, but the reality is that everyone can benefit from expert help, not just wealthy individuals holding a complicated array of assets.

Building a relationship

Taking the time to construct a clear and tailored plan that meets each client’s unique set of needs and circumstances is the key to making sound financial decisions. In addition, developing a strong and enduring relationship by holding regular reviews builds in the flexibility for plans to be adapted when life events inevitably dictate change.

Time for a review

We’re always here to help bring clarity to your financial decision-making as you progress on life’s exciting journey. So please do get in touch – it would be great to talk with you.

¹FSCS, 2023

Time to review your resilience

Mature couple reviewing their protection cover

Awareness of the importance of protection has risen since the pandemic and led many to reassess their financial and personal priorities. It’s sensible to review your protection cover once a year and to discuss it with those close to you to make sure it still meets your needs.

Have the conversation

Only half (52%) of unmarried adults who are in a relationship know whether their partner has a life insurance policy and more than a quarter (27%) of those who do know are unaware of the policy’s value¹.

Many people assume they will automatically be entitled to the life insurance payout in the event of their partner’s death. This may not necessarily be the case. So, consider whether the policy should be put in trust to ensure the proceeds go where you want them to.

Prepare for financial shocks

How would you cope if you became ill? Would you have to rely on your partner, or struggle on trying to work? Almost one in five (19%) working adults say they would have to rely on their partner’s income or savings if they were unable to work, with 19% struggling to pay their mortgage or rent if they were unable to work for two months due to illness or injury. Some 11% would resort to taking on debt such as a loan, overdraft, or credit cards².

It makes sense to review your situation carefully if you’re self-employed too. Only 6% of self-employed workers have an income protection policy and millions of self-employed people consider they would have to carry on working if they suffered an illness or injury.

¹Scottish Widows, 2023

²LV=, 2023

Economic Review – May 2023

UK growth forecasts upgraded

Revised projections released last month by both the Bank of England (BoE) and International Monetary Fund (IMF) suggest the UK economy is now set to avoid recession this year.

The BoE’s latest forecast predicts the economy will grow by 0.25% across the whole of 2023, a significant upgrade from February’s prediction of a 0.5% contraction. This improved outlook reflects a number of factors, including stronger than anticipated global growth, lower energy prices and the fiscal support announced by the Chancellor in his Spring Budget.

Updated IMF figures also show the UK is now unlikely to enter recession, with the international soothsayer predicting a growth rate of 0.4% for 2023; in comparison, its previous forecast had suggested the economy would contract by 0.3% over the course of this year. The IMF said growth would be helped by ‘resilient demand ‘as well as falling energy prices and praised the UK authorities for taking ‘decisive and responsible steps in recent months.’

The latest gross domestic product (GDP) figures published by the Office for National Statistics (ONS), however, highlight how fragile the recovery remains with growth still sluggish. Although GDP across the first three months of 2023 did edge up by 0.1%, a similar tepid pace as achieved during the final quarter of last year, monthly data revealed an unexpectedly sharp drop in output during March, with GDP actually declining by 0.3% during the month.

Recently released data from the closely watched S&P Global/CIPS UK Purchasing Managers’ Index (PMI), though, does suggest growth has picked up in the second quarter. May’s preliminary headline reading came in at 53.9, lower than April’s one-year high of 54.9, but comfortably above the 50 threshold that denotes growth in private sector output. Indeed, S&P Global noted that their PMI readings were consistent with ‘GDP rising 0.4% in the second quarter.’

Interest rates rise again

Last month, the BoE announced another hike in its benchmark interest rate and insisted it will ‘stay the course’ in its battle to bring down inflation.

Following its latest meeting, which concluded on 10 May, the BoE’s nine-member Monetary Policy Committee (MPC) voted by a 7-2 majority to raise Bank Rate by a further 0.25 percentage points. This was the 12th consecutive increase, taking rates to 4.5%, their highest level in almost 15 years.

Commenting after announcing the decision, BoE Governor Andrew Bailey made it clear that the Bank’s next moves would depend on the trajectory of forthcoming data. However, Mr Bailey did stress that, “We have to stay the course to make sure inflation falls all the way back to the 2% target.”

The minutes to the meeting also warned that the Bank now believes inflation will remain higher for a longer period, largely as a result of food price inflation which is ‘likely to fall back more slowly than previously expected.’ Its latest forecast, which was published alongside the rate decision, suggests inflation will fall to 5.1% by the end of this year, significantly higher than its previous forecast of 3.9%.

ONS data published two weeks after the MPC’s announcement confirmed that the headline rate of inflation remains stubbornly high. While it did fall from 10.1% in March to 8.7% in April, as the extreme energy price hikes seen a year ago dropped out of the calculations, the figure was much higher than the consensus forecast in a Reuters poll of economists which had predicted a rate of 8.2%.

April’s inflation data surprise has undoubtedly increased the likelihood of further rate hikes in the coming months. The next decision is due to be announced on 22 June with analysts now typically expecting another 0.25 percentage point rise.

Markets (Data compiled by TOMD)

At the end of May, global markets closed the month largely in negative territory, with investors awaiting the outcome of the key vote on the US debt ceiling. In addition, the latest economic data from China, which highlighted a further decline in manufacturing activity, also weighed on sentiment.

In the UK, the FTSE 100 ended the month on 7,446.14, a loss of 5.39%, while the mid cap FTSE 250 closed down 3.62% on 18,722.90 and the FTSE AIM closed May on 782.77, a monthly loss of 5.68%.

In the US, the Dow Jones index closed the month down 3.49% on 32,908.27, while the NASDAQ closed the month up 5.80% on 12,935.28. On the continent, the Euro Stoxx 50 closed May on 4,218.04, a loss of 3.24%. In Japan, the Nikkei 225 closed the month up 7.04%, on 30,887.88. The index recently reached historic highs in May, with market sentiment buoyed by the potential of the semiconductor and AI markets.

On the foreign exchanges, the euro closed the month at €1.16 against sterling. The US dollar closed at $1.23 against sterling and at $1.06 against the euro.

Brent crude closed the month trading at around $73 a barrel, a monthly loss of 8.60%. At month end, traders awaited news on progress of the US debt bill, digested the weak Chinese manufacturing data, and considered how the weakening growth could impact crude demand. Gold closed the month trading at $1,964.40 a troy ounce, a small monthly loss of 0.92%.

More optimistic outlook for retailers

Official retail sales statistics showed a slightly stronger-than-expected increase in sales volumes during April while survey evidence points to modestly rising levels of optimism within the retail sector.

The latest ONS retail sales figures revealed signs of consumer spending resilience, with volumes rising by 0.5% in April following March’s sharp decline when sales were hit by unusually wet weather. Furthermore, across the whole of the February-to-April period, sales volumes grew by 0.8% compared to the previous three months; this represents the largest increase recorded on this measure since August 2021.

Evidence from the recently released CBI Distributive Trades Survey suggests the trading environment does remain challenging with sales volumes dipping in the year to May. Sales are expected to stabilise in June, however, and retailers generally expect to see a modest improvement in their business situation over the coming three months.

Commenting on the survey findings, CBI Principal Economist Martin Sartorius said, “Looking ahead, there are some reasons for retailers to be more optimistic about the outlook. Consumer sentiment has been improving and households’ energy bills are set to decline from July. The resulting boost to incomes should help support retail sales going into the second half of this year.”

Unemployment rate edges higher

The latest batch of labour market statistics suggests a further softening in the jobs market with a rise in the rate of unemployment and another fall in the number of job vacancies.

ONS figures released last month showed that the unemployment rate during Q1 edged up to 3.9%, a 0.1 percentage point increase from the previous three months. This was higher than the median forecast in a Reuters poll of economists which had predicted the rate would hold steady at 3.8%.

In addition, the estimated total number of job vacancies fell by 55,000 during the three months to April, hitting its lowest level since mid-2021. This was the tenth consecutive decline, with ONS saying that companies continued to cite ‘economic pressures’ as a factor in holding back on recruitment.

The labour market update also reported the number of people not working due to long-term sickness at a new record high. Over two and a half million people are now not working due to health issues, with ONS saying the increase has been driven by a rise in mental health conditions among younger age groups, people suffering with back and neck pain, and a rise in post-viral fatigue.

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.

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

News in review

“The return to single digit inflation suggests the UK has turned a corner”

Official data released by the Office for National Statistics (ONS) last week revealed that inflation returned to single digits in April, following seven consecutive months residing above 10%. The Consumer Prices Index (CPI) increased by 8.7% in the 12-month period to April, down from 10.1% in March.

Driven by a drop in energy and gas prices, the fall in inflation was not as large as expected, with a Reuters poll of economists anticipating annual CPI of 8.2% to the end of April, while the Bank of England forecast stated 8.4%.

Although annual food inflation dipped for a second consecutive month, it remained robust at 19.1% in April, compared to 19.2% the previous month, while service inflation saw a 1.6% rise month-on-month.

Economies Director at the Institute of Chartered Accountants in England and Wales (ICAEW) Suren Thiru responded to the latest inflation statistics, “While still staggering, the return to single digit inflation suggests the UK has turned a corner in its fight against soaring prices after lower energy bills pulled down the headline rate.”

Mr Thiru continued, “This will be the first of the big falls in inflation this year, with the headline rate set to fall sharply over the summer once the expected reduction in Ofgem’s energy price cap drives down energy bills from July.”

IMF expectations for the UK economy shift

The inflation figures came hot on the heels of a statement from the International Monetary Fund (IMF) in which it outlined that the UK would no longer be entering recession in 2023. Instead, the IMF expects the UK to experience growth of 0.4% in the year, contrary to the previous month’s forecast of a 0.3% annual contraction. Kristalina Georgieva, the IMF’s Managing Director, praised the government for taking “decisive and responsible steps in recent months,” to stabilise the economy and fight inflation. The report noted that monetary policy will need to remain tight to keep inflation expectations ‘well-anchored.’ With IMF growth prospects for the UK stronger than Italy, Germany and France, Chancellor Jeremy Hunt said the report “credits our action to restore stability and tame inflation.”

Mortgage rates on the rise

Various mortgage lenders increased the rates of new deals at the tail end of last week, following release of the higher-than-expected inflation figures. Nationwide, one of Britain’s largest building societies, was one such lender, increasing rates on new fixed rate borrowing by up to 0.45 percentage points. A Nationwide spokesperson said of the increase, ”In the current economic environment… this will ensure our mortgage rates remain sustainable.” Other major lenders such as Halifax and Santander also upped their rates last week. In addition to product rate increases, fewer mortgages are on the market, with some lenders choosing to withdraw products.

Retail volumes expected to stabilise in June

Retail sales volumes fell in May compared with the same period last year, while staffing levels dropped sharply, the recent Confederation of British Industry’s (CBI) Distributive Trades Survey has found. Volumes fell to a balance of -10% in May from +5% in April. Stores surveyed are expecting sales volumes to stabilise in June as consumer confidence picks up and energy prices reduce. Principal Economist at the CBI, Martin Sartorius said retailers had reason to be optimistic about the outlook, “Consumer sentiment has been improving and households’ energy bills are set to decline from July… The resulting boost to incomes should help support retail sales going into in the second half of this year.”

Other key findings from the survey highlighted that internet sales fell in the year to May. Online volumes are also expected to reduce at a similarly moderate pace in June. Focusing on price growth in the year to May, it remained at a near multi-decade high in May, with prices expected to continue to increase at this rapid pace. In the year to May, retail sector employment fell for the third consecutive quarter running and at the fastest pace since February 2009. Retailers are expecting headcount to continue to contract going forward.

Here to help

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

All details are correct at time of writing (31 May 2023)