Global economy – Signs of optimism

Although the global economy continues to face significant headwinds, statistics released during the first few months of this year have revealed unexpected signs of resilience. This has led economists to begin upgrading growth forecasts, while the World Economic Forum’s latest Chief Economists Outlook reported signs of ‘nascent optimism.’  

Growth stronger than expected 

Uncertainty undoubtedly continues to be a key feature of the world economy with pressure being exerted from a number of issues. First quarter data, though, has shown that the global economy performed better than most economists had previously feared, with growth recorded across all regions amid signs of the green shoots of recovery. 

Inflationary pressures set to fall  

Persistent inflationary pressures and tighter financial conditions, however, do remain key challenges for policymakers around the globe. Inflation has so far stayed stubbornly high and, while economists do expect it to continue falling over the rest of the year, this decline is predicted to be at a slower pace than previously thought. 

Resilient economic growth  

A key theme at the World Economic Forum’s recent Growth Summit was ‘enabling resilient economic growth’ with discussions focusing on inclusive and sustainable growth, and equitable globalisation. The organisation’s updated forecast showed a notable strengthening in growth expectations, although it also highlighted sharp variations by region. The most buoyant activity is predicted to be in Asia, with China’s reopening expected to drive a significant rebound, while growth prospects are thought to be noticeably weaker in Europe. 

Diversification is key 

An improving outlook should clearly create opportunities for shrewd investors. However, the relatively uncertain backdrop, along with divergent regional dynamics, inevitably means diversification will remain a vital component in any investor’s armoury. Spreading money in a globally diversified portfolio across a range of sectors and different size businesses should, as ever, prove an effective way to mitigate risk in the quest to build wealth. 

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. 

News in Review

“British pensioners should benefit from British business success” 

Chancellor Jeremy Hunt announced a package of reforms designed to boost pensions and increase investment in British businesses, in his first Mansion House speech which took place on Monday evening. He stated that the Mansion House Reforms aim to secure the best possible outcome for pension savers, whilst prioritising a strong, diversified gilt market and strengthening the UK’s position as a leading financial centre.  

The Chancellor revealed 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.  

Mr Hunt estimates that the plans could provide a £1,000 a year boost in retirement to the typical earner who starts saving at 18.  

Commenting on the reforms, 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.” 

At the same Mansion House event, Bank of England Governor Andrew Bailey said reducing inflation to 2% is “so important” as people “should trust that their hard-earned money maintains its value.” 

House prices fall at fastest rate in 12 years 

The latest Halifax House Price Index shows an annual fall in prices of 2.6%, which the lender says is equal to around £7,500 being wiped off the average UK house price, the biggest drop since 2011. House prices fell for the third month in a row, dipping by 0.1%. The average cost of a UK property is now £285,932, compared to a peak of £293,992 last August. 

At the same time, mortgage rates continue to rise. Moneyfacts released data on Tuesday showing the average two-year fixed rate mortgage had climbed to 6.66%. 

“Rock solid” relations 

Ahead of a key NATO meeting in Vilnius, Lithuania, US President Joe Biden described relations with the UK as “rock solid” in his talks with Prime Minister Rishi Sunak, adding that he “couldn’t be meeting a closer friend and a greater ally.”  

The President also held separate talks on Monday with King Charles at Windsor Castle in their first meeting since the King’s coronation in May. 

Record wage growth  

Figures released on Tuesday by the Office for National Statistics (ONS) indicate that UK wages have risen at a record annual pace, fuelling fears that inflation will remain higher for longer. Growth in total pay (including bonuses) was 6.9%, whilst regular pay (excluding bonuses) grew by 7.3% in the March to May period, when compared to the same period a year earlier.  

However, when adjusted for inflation, growth in total and regular pay fell on the year in March to May 2023, by 1.2% and 0.8% respectively.   

Retired over 50s poorer 

A study by the Institute for Fiscal Studies (IFS) of people aged over 50 who left work during the pandemic has found that 48% of those who retired in 2020-21 are now living in relative poverty, are less likely to receive a pension and have lower levels of wellbeing than other retirees. IFS defines relative poverty as a couple on an income of less than £15,000 a year.  

The research concluded that disruption from the pandemic and perceived health risks may have forced many to leave work earlier than they had originally planned. 

Parents may miss out on State Pension 

Due to errors in National Insurance (NI) records, some parents may have been underpaid their State Pension. It’s estimated that around £1bn is owed, to about 210,000 people, of whom 43,000 have died. That would equate to an average shortfall of about £5,000 each. 

Parents who took time out of employment to bring up children should have had their NI records credited with home responsibilities protection (HRP), but it has come to light that the credit is missing from some NI records.   

A government spokesperson commented, “Most people’s records will be unaffected, and we will shortly be launching a new online tool to help people check whether they need to claim. HM Revenue & Customs will also begin writing to those likely to be affected from the autumn.” 

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 (12 July 2023) 

Summer 2023 – what next for the housing and mortgage markets?

Activity in the housing and mortgage markets is hotting up – and cooling down. According to the latest Residential Market Survey from the Royal Institution of Chartered Surveyors, a run of thirteen successive negative monthly readings for new instructions ended in May, marking the strongest reading for new listings since March 20211. Yet house prices are still predicted to fall in the second half of the year. 

What next for house prices? 

House price growth dipped in May and notably the annual rate of growth fell to -1.0%, marking the first time since 2012 that house prices have fallen year-on-year2. It remains to be seen which way the market will veer in the second half of 2023. 

If, as many are predicting, a flurry of mortgaged homeowners are forced to sell up when their current fixed-term deals end, the market could see a boost to supply that might reinforce the downward price movement. Analysts suggest too that first-time buyers (FTBs) could be delaying their homebuying plans in the hope that mortgage rates or house prices are about to fall sharply. 

Bank Rate 

Meanwhile, the Bank of England’s (BoE’s) Monetary Policy Committee (MPC) increased Bank Rate in June, taking it to 5%. Borrowing costs are now at their highest level since 2008. Those with tracker or variable rates have seen immediate higher repayments. 

Return of the 100% LTV mortgage 

The mortgage market is kicking back into action too, with one especially noteworthy development, the launch of a new mortgage product that allows FTBs to take out a loan on the full value of their home. The 100% loan-to-value (LTV) mortgage is exclusively for current renters and depends on their being able to prove a track record of timely rent payments. 

Don’t second guess 

Whatever happens in the months ahead, we’re here to help you make the right decisions for your unique circumstances. 

1RICS, 2023 

2Halifax, 2023 

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

Making purposeful financial decisions

The upsurge in inflation over the last year or so has again vividly highlighted the devastating impact sharply rising price levels can wreak on people’s finances. Carefully reviewing your financial choices now, though, can ensure you continue making appropriate decisions that will help to stop inflation leaving a lasting impression on your financial future. 

A lack of understanding 

Official statistics show the headline rate of inflation peaked at a 41-year high of 11.1% last October but, although economists expect it to continue falling for the rest of this year, the rate has so far remained stubbornly high. Research1, however, suggests the impact inflation has on our finances is not widely understood, with over half of UK adults failing to grasp how rising prices eat into the buying power of their savings. 

Limiting the damage 

Inheritance is another area where high inflation can have a profound effect. When combined with the continuing nil-rate threshold freeze, soaring prices inevitably mean more estates are likely to be dragged into the Inheritance Tax net. Careful planning now, though, can limit any future liability and preserve people’s ability to pass on assets to their heirs. 

Pension pressures 

Retirement provision is also a concern, with growing evidence that cost-of-living pressures are leading some to cut back contributions as a way to make ends meet, without realising the lasting damage such decisions can make. For instance, analysis2 based on various assumptions (about such factors as salary, pension contribution rates and investment growth) shows that if someone opts out of pension contributions for five years in their 20s it could reduce their final retirement pot at age 66 by £114,000. 

Stay on plan 

At times like these, it is often worth revisiting what initially inspired you to set your financial goals. Reconnecting with those original motivations can encourage you to stick to your plans and thereby help maintain control over your financial destiny. 

Here for you 

As ever, we’re here to help; so please get in touch if you need to review your finances and, together, we’ll plan to mitigate inflation’s impact on your future financial wellbeing. 

1Aviva, 2022 

2Standard Life, 2023 

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. 

Spotlight on pension changes

During the Spring Budget the Chancellor announced several changes to pensions including increasing the Annual Allowance and the Money Purchase Annual Allowance. The changes, the most significant since pensions freedoms in 2015, have largely been met with positivity, bringing greater flexibility and opportunity. 

Some higher-paid workers faced additional tax bills as a result of building sizeable pension pots or significant final salary benefits. The overhaul makes it easier for people to accumulate a larger pension pot and not be penalised by taxes, also enabling them to build larger capital sums needed to produce sufficient retirement income. Let’s take a look in closer detail at some of the main changes, many of which took effect from 6 April 2023: 

  • The Lifetime Allowance (LTA) charge was removed, with the LTA (currently £1,073,100) itself expected to be formally abolished (likely to be April 2024), allowing people to save more into their pension over their lifetime without facing tax charges for exceeding it 
  • The standard Annual Allowance (AA) increased from £40,000 to £60,000 (max 100% of earnings), allowing many individuals to pay more into their pension each tax year and receive tax relief on it. Individuals are still able to carry forward any unutilised allowance from the previous three tax years. Increasing the AA will particularly benefit workers approaching retirement who may have neglected pension saving in the past, who will be able to pay more into their pension each year and receive tax relief 
  • The ‘adjusted income’ threshold for Annual Allowance tapering increased from £240,000 to £260,000 and the minimum tapered Annual Allowance increased from £4,000 to £10,000 (meaning that individuals with annual adjusted income of £360,000 or more will have an Annual Allowance of £10,000). The tapered Annual Allowance is the reduced pension Annual Allowance that is applied to those who now have an ‘adjusted income’ over £260,000, for every £2 earned above the £260,000 threshold the normal Annual Allowance is reduced by £1 
  • The Money Purchase Annual Allowance (MPAA) increased from £4,000 per tax year to £10,000, to encourage those drawing a pension to continue working. This is the amount you can pay into your pension after you have accessed pension benefits, and still enjoy tax relief. The additional MPAA means anyone already using their pension but continuing to work, or looking to return to work, will be incentivised to do so as they can increase the size of their pension pot and receive tax relief. 

Good for you 

The changes only really impact the highest earners, those with generous company pensions and those wanting to aggressively fund their pensions later in life. The government is hoping the changes will incentivise those in certain high demand, high earning professions such as GPs and NHS consultants to postpone retirement. 

Professional pension advice is essential to ensure you make the most suitable decisions with your pension and to maximise your pension provision without encountering tax issues. 

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

“These measures should offer comfort to those who are anxious about high interest rates”

Last week, around 85% of lenders operating in the UK’s mortgage market signed a government Mortgage Charter agreeing to support borrowers, following a meeting with the Chancellor to discuss the impact of rising mortgage rates on homeowners. 

The Charter includes allowing borrowers to contact their lender for help, without impacting their credit file and enabling borrowers who are up to date with payments to switch to a new mortgage when their fixed term ends, without another affordability check. The ability to switch takes effect from 10 July and will be available six months before a borrower’s fixed term period expires.

Lenders will also help borrowers to plan for when their rate ends and offer support to those struggling financially. This may include extending their mortgage term to reduce payments, switching to interest-only, or temporarily deferring payments.

Chancellor Jeremy Hunt said the measures “should offer comfort to those who are anxious about high interest rates and support for those who do get into difficulty. As we have consistently shown through the pandemic, and the consequences of the war in Ukraine, we will always be on the side of households.”

Small Q1 growth for UK

The UK economy grew by 0.1% in the first quarter, according to data released by the Office for National Statistics (ONS) on Friday. The small GDP boost helped the UK steer clear of recession but left output 0.5% lower than it was in the final quarter of 2019.

Separately, figures released by the Bank of England (BoE) on Friday showed that households withdrew £4.6bn net from banks and building societies in May, the highest level of withdrawals since the BoE started collecting this monthly data in 1997. As inflation and cost-of-living pressures put the squeeze on household budgets, more people are dipping into savings to sustain living standards or to pay off mortgages or loans.

Central bankers not backing down 

Leaders of the world’s top central banks met last Wednesday in Sintra, Portugal, to discuss the prospect of further policy tightening to tame high inflation. At the end of the meeting, the bankers reaffirmed their belief that inflation can be lowered without triggering outright recessions.

Significant interventions came from US Federal Reserve Chairman Jerome Powell, who kept open the possibility of consecutive interest rate hikes. Likewise, European Central Bank President Christine Lagarde seemed to confirm the expectation of a ninth consecutive rise in eurozone rates in July.

BoE Governor Andrew Bailey, meanwhile, said he would do what is needed to bring down persistent price growth in the UK. Markets currently predict the BoE will increase Bank Rate from 5% to 6.25% by the end of this year, to which Mr Bailey commented, “They’ve got a number of further increases priced in for us. My response to that would be, well, we’ll see.”

Bank of Japan Governor Kazuo Ueda remains an outlier, though even he seemed to open the door to one day abandoning the country’s ultra-easy policy.

UK-EU collaboration agreed

After years of post-Brexit disagreements, the UK has signed a pact with the EU to increase co-operation on financial services. The deal will include establishing a new forum where representatives can meet twice a year to discuss financial regulation and standards. A published memorandum stated, ‘Both sides will share information, work together towards meeting joint challenges and co-ordinate positions.’

New NHS plan revealed

On Friday, the government revealed its latest workforce plan for the National Health Service (NHS), with a promise to train more doctors and nurses, and create thousands of new roles to work alongside them. Proposals include doubling the number of university places for medical students, introducing a new apprenticeship scheme for doctors and shortening medical degrees.

The launch of the new plan follows revelations last Thursday that staff sickness in the NHS in England reached record levels in 2022, with the NHS losing the equivalent of nearly 75,000 staff to illness.

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 (5 July 2023)

Where are house prices most resilient?

In a housing downturn, not all cities and towns are equal. New research1 has highlighted which areas of the UK are the most resilient in the face of falling prices. 

On the slide 

In January, overall property prices fell for a fifth consecutive month, as the market continued to cool. Sliding prices have been brought about by soaring inflation and mortgage costs, as well as cost-of-living pressures placed on households. 

The safest bets 

Which areas are standing firm? The most ‘recession-proof’ area, according to the study, is the London Borough of Kensington and Chelsea, closely followed by Westminster and Camden. Swansea in Wales and Oxford in England both also deserve a mention. 

In total, Scotland has so far suffered a less abrupt slowdown in house prices than elsewhere in the UK, according to Nationwide. 

Here to help 

The ranking of the 96 most-populated local authority areas was based on factors such as mortgage debt, the proportion of first-time buyers and price changes in the past year. 

In an uneven market, we are here to help guide you through everything you need to know. 

1Garrington Property Finders, 2023 

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

Green home improvements on hold

Homeowners are delaying improvements to the sustainability of their homes, according to the latest ‘Greener Homes Attitude Tracker’ from Natwest1, as cost-of-living difficulties remain. 

Cost-of-living delay 

More than a quarter of homeowners indicated they are less inclined to implement energy saving measures in the upcoming 12 months amid enduring financial concerns. In the three months to December 2022, this figure fell for the first time since the Green Home Improvements Index started in Q2 2021. 

Furthermore, 71% of homeowners who do not plan to make modifications in the next decade cited the expense of the work as the single biggest obstacle. 

Simplicity the key 

Although homeowners continue to place importance on energy saving measures, barriers remain. Smart energy meters are the most likely sustainability measure to be installed over the next year, highlighting a preference for simplicity. 

1Natwest, 2023 

Economic Review – June 2023

Inflation persistence forces rates higher

The Bank of England (BoE) has sanctioned another hike in its benchmark interest rate after citing ‘significant upside news’ which suggests inflation is likely to take longer to fall back to the Bank’s target level.

Following its latest meeting, which concluded on 21 June, the BoE’s nine-member Monetary Policy Committee (MPC) voted by a 7-2 majority to raise Bank Rate by half a percentage point. This was the 13th successive increase taking rates to 5.0%, their highest level for 15 years.

The minutes to the meeting said there had been ‘significant upside news in recent data that indicates more persistence in the inflation process.’ They also stressed that the MPC will continue to ‘monitor closely indications of persistent inflationary pressures’ and ‘if there were to be evidence of more persistent pressures, then further tightening in monetary policy would be required.’

Commenting on the day the decision was announced, BoE Governor Andrew Bailey said, “The economy is doing better than expected but inflation is still too high and we’ve got to deal with it. If we don’t raise rates now, it could be worse later.”

Data published by the Office for National Statistics (ONS) the day before the MPC’s announcement confirmed that the headline rate of inflation remains stubbornly high. The Consumer Price Index (CPI) 12-month rate – which compares prices in the current month with the same period a year earlier – stood at 8.7% in May, the same figure as the previous month and well above the 8.4% consensus prediction from a Reuters poll of economists.

The CPI inflation rate currently stands more than four times higher than the BoE’s 2% target and economists now typically expect to see another two quarter-point hikes over the coming months. The MPC’s next interest rate decision is due to be announced on 3 August.

Surprise rise in pay growth

Although the latest official earnings statistics revealed that nominal wage levels are now rising at a record pace, the release also showed that pay growth is still failing to keep up with the continuing rapid rise in prices.

Figures published last month by ONS showed that average weekly earnings excluding bonuses, rose at an annual rate of 7.2% in the three months to April. This was up from 6.8% recorded in the previous three-month period and also higher than a 6.9% rise predicted in a Reuters poll of economists.

ONS Director of Economic Statistics Darren Morgan noted that, in cash terms, basic pay is now growing at the fastest rate since current records began over 20 years ago, excluding the period when figures “were distorted by the pandemic”. Mr Morgan added, “However, even so, wage rises continue to lag behind inflation.”  Indeed, in real terms, regular pay actually fell by 1.3% on the year during the February-April period.

Changes to the minimum wage implemented at the start of April were a key contributor to the record jump in nominal pay growth. Nearly two million workers benefited from a 9.7% rise which took the National Living Wage up to £10.42 an hour for those aged 23 and over.

The BoE has been closely monitoring pay levels, and the Bank Governor said the data showed “we’ve got a very tight labour market in this country.” The BoE has warned that large pay rises are likely to prolong the UK’s period of high inflation.

Recently published survey data also suggests pay settlements remain at a historically high level. Figures from XpertHR showed that the median basic pay settlement in the three months to the end of May held at the same record high that had been reported during the previous three-month period.

Markets (Data compiled by TOMD)

On the last trading day of June, global markets closed in largely positive territory, with new data confirming the UK avoided a winter recession, while a drop in eurozone inflation supported investor sentiment.

Across the pond, the Dow Jones index closed the month up 4.56% on 34,407.60, while the tech-focused NASDAQ closed the month up 6.59% on 13,787.92, supported by the advancement of Apple through the $3trn market cap threshold.

On the continent, the Euro Stoxx 50 closed June up 4.29% on 4,399.09. In Japan, the Nikkei 225 closed the month up 7.45%, on 33,189.04. With the lower value of the yen and positive changes in the domestic business environment, investors have taken a renewed interest in the world’s third largest economy.

In the UK, the FTSE 100 ended Q2 on 7,531.53 a gain of 1.15%. The domestically focused FTSE 250 closed the month on 18,416.76, a loss of 1.64% and the FTSE AIM closed June on 753.51 a monthly loss of 3.74%.

On the foreign exchanges, the euro closed the month at €1.16 against sterling. The US dollar closed at $1.26 against sterling and at $1.09 against the euro.

Gold closed the month trading at $1,912.25 a troy ounce, a monthly loss of 2.65%. Gold has been under pressure from expectations of further interest rate hikes stateside. Brent crude closed the quarter trading at around $75 a barrel, a monthly gain of 2.85%. Geopolitical pressures loom over oil supply and pricing heading into the second half of 2023.

Retail sales rise unexpectedly

The latest official retail sales statistics have revealed another surprise monthly increase in sales volumes, although more recent survey data does suggest retailers continue to face a difficult trading environment.

According to ONS data, sales volumes grew by 0.3% in May, exceeding economists’ expectations of a small monthly decline. The figures were boosted by an extra bank holiday to mark the coronation of King Charles as well as the arrival of more summery weather during the second half of the month.

Commenting on the data, ONS Senior Statistician Heather Bovill said, “Retail sales grew a little in May, with online shops doing particularly well selling outdoor goods and summer clothes, as the sun began to shine. Garden centres and DIY stores also saw growth, as the good weather encouraged people to start home and garden improvements.”

Survey data released last month also suggests that UK consumers remain remarkably resilient, with sentiment hitting its highest level since January 2022 as households turned more optimistic about their finances and the economy. Evidence from the latest CBI Distributive Trades Survey, however, points to weaker sales in June, and the business group said conditions for retailers are likely to remain ‘challenging’ in the months ahead.

UK economy sees modest growth

Growth statistics released last month by ONS showed the UK economy edged higher in April, although forward-looking indicators do suggest any momentum may have been lost in the last couple of months.

The latest gross domestic product figures revealed that the UK economy grew by 0.2% in April, following a fall of 0.3% in March. ONS said retailers and the film industry, along with strong trade in bars and pubs were the main drivers of growth, outweighing contractions in both the manufacturing and construction sectors.

Data from the latest S&P Global/CIPS UK Purchasing Managers’ Index (PMI) released towards the end of last month, however, suggests there are signs the economy may now be cooling as a result of tighter monetary policy. The preliminary composite headline figure fell to a three-month low of 52.8 in June, down from 54.0 in May.

Commenting on the findings from the June PMI survey, S&P Global Market Intelligence’s Chief Business Economist Chris Williamson said, “The pace of expansion slowed amid signs of a growing toll from the rising cost of living and higher interest rates. Most notably, consumer spending on services, a core growth driver earlier in the year, is now showing signs of faltering.”

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 (03 July 2023).

News in Review

“If we don’t raise rates now, it could be worse later”

Last Thursday, the Bank of England (BoE)’s Monetary Policy Committee (MPC) voted to increase Bank Rate to 5%, a half percentage point rise that caught many economists by surprise.

After a thirteenth consecutive rise, Bank Rate is now higher than at any point since 2008. The latest increase also signals the MPC shifting gear in its fight against persistent inflation, with seven MPC members opting for a 0.5% increase. Two dissenting committee members, however, favoured no change from 4.5%.

The MPC’s decision followed inflation figures released by the Office for National Statistics (ONS) last Wednesday that showed inflation had held firm at 8.7% in May, above analysts’ expectations for the month. Importantly, core inflation, which strips out energy, food, alcohol and tobacco, hit 7.1%, a rise from 6.8% in the previous month.

With this latest rise, the BoE now hopes to get a more solid grip on inflation. Commenting on the rate rise, BoE Governor Andrew Bailey said, “The economy is doing better than expected but inflation is still too high and we’ve got to deal with it. If we don’t raise rates now, it could be worse later.” He added, “I understand the difficulty and the pain that causes for many people.”

Talking from a warehouse in Dartford, Prime Minister Rishi Sunak commented, “I’m sure [the rate rise] actually fills many of you with some anxiety and some concern about what’s going on and what that means for you and your families. I’m here to tell you that I am totally, 100%, on it and it’s going to be okay and we are going to get through this.”

The next MPC meeting is scheduled for 3 August.

The global economy

The BoE’s Committee Summary provided a view on the global economy, outlining an expectation that UK-weighted global GDP growth in Q2 was to be ‘marginally stronger than anticipated at the time of the May Monetary Policy Report.’ It was noted that the most acute risks from the recent banking sector woes have receded and that during Q2, growth momentum in China slowed. The expectation is that recent weakness in Chinese tradable goods prices is likely to put downward pressure on global export price inflation.

Bankers summoned to discuss rate rise

On Friday, banks and building societies met with Chancellor Jeremy Hunt to discuss possible ways to help people struggling with rising mortgage costs.

Following the increase in Bank Rate, many mortgage holders are now facing immediate higher repayments, while others coming to the end of a fixed-term deal will soon be confronted with higher rates. It is estimated that those on a typical tracker mortgage will pay about £47 more each month, while the figure for those on standard variable rate (SVR) mortgages will be about £30 extra.

Ahead of Friday’s meeting, Mr Hunt and Rishi Sunak had already dismissed suggestions from some that the government should step in to help those struggling with their bills. Instead, the meeting resulted in the promise from banks and building societies of greater flexibility for those unable to keep up with rising costs. In practice, this means that struggling borrowers will be able to make a temporary change to their mortgage terms to reduce monthly costs in the short term, for example by switching to interest-only repayments.

Summer clothes splurge

Latest retail figures released by ONS on Friday showed a boost for sales, as shoppers sought out summer clothes. Since the second half of May, when temperatures first started to soar, sales volumes have risen by 0.3%.

Online retailers and garden centres fared particularly well, according to ONS, along with fuel sales. In contrast, food sales slipped by 0.5% as shoppers continue to adjust to higher prices.

Commenting on the data, Heather Bovill, Senior Statistician at ONS said, “Retail sales grew a little in May, with online shops doing particularly well selling outdoor goods and summer clothes, as the sun began to shine. Garden centres and DIY stores also saw growth, as the good weather encouraged people to start home and garden improvements.”

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 (28 June 2023)