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“The sky’s the limit for British and Japanese businesses and entrepreneurs”

Rishi Sunak attended the G7 Summit in Hiroshima on Thursday, stopping off in Tokyo to agree new defence and economic deals; a UK business summit for Japanese corporations in the capital has resulted in a reported £18bn investment in UK property, windfarms and other projects.

Over half the investment is earmarked for green hydrogen and offshore wind projects in Wales and Scotland, with £4bn for offshore wind projects off the Suffolk and Norfolk coastlines. According to Mr Sunak, the investment is a “massive vote of confidence in the UK’s dynamic economy… The sky’s the limit for British and Japanese businesses and entrepreneurs.” UK-Japan partnerships were also announced between semiconductor companies, armed forces and cyber-agencies.

At the summit, attention turned to relationships with China, with a communiqué stating that the G7 wanted ‘constructive and stable relations’ with Beijing. The G7 nations also reaffirmed their commitment to countering Russia’s aggression, with a visit from Ukraine’s President Zelensky stealing many of the headlines.

Adjusting Bank Rate “as necessary”

Speaking at the British Chambers of Commerce (BCC) Global Annual Conference last week, Andrew Bailey, Governor of the Bank of England (BoE), addressed the current state of the UK economy.

He spoke about the Bank’s commitment to return inflation to its 2% target, reassuring the audience that the Monetary Policy Committee (MPC) will take strides to adjust Bank Rate “as necessary”. He reiterated that further monetary policy tightening would be required “if there were to be evidence of more persistent pressures.”

Referring to the recent Monetary Policy Report (MPR) released in mid-May, which signalled a u-turn in UK growth expectations this year, Mr Bailey noted that the forecast is for modest growth. Commenting that the improved outlook is reflective of the reduction in wholesale gas prices, he elaborated, “There has also been greater resilience in the economy than we had expected. We can see that in the employment and unemployment numbers that have been stronger than expected. Fiscal policy has also given a boost to the economy and global growth has been holding up better than we thought particularly in the euro area and China.”

Referring to high food prices and their continuing impact on inflation in the UK, Mr Bailey said that expectations are for inflation to fall “sharply” as the year progresses. Data released by research firm Kantar confirmed that the rate at which food prices is rising fell for a second consecutive month in May. However, the data also revealed that there is a long way to go; prices were up by 17.2% from a year ago in the four weeks to the middle of May, only marginally below 17.3% recorded last month.

Boost to consumer confidence

Meanwhile, UK consumer confidence improved in May, according to GfK’s latest index. This is a fourth consecutive monthly rise, a climb of three points to -27, the highest since February 2022.

Commenting on the data, Joe Staton of GfK, said, “The cost-of-living crisis has been part of our daily financial reality for a long time, with double-digit inflation and record-high food prices. But despite those pressures, May sees an encouraging three-point uptick in consumer confidence. The headline score of -27 means we’re still deep in negative territory and a long way from any ‘sunny uplands’. However, the overall trajectory this year is positive and might reflect a stronger underlying financial picture across the UK than many would think.”

Borrowing at near-record highs

The UK government borrowed £25.6bn in April, a year-on-year rise of £11.9bn, according to data released by the Office for National Statistics (ONS). Although analysts were factoring in that inflation would push up interest payments on debt, the figure still beat expectations for the month. The costs of energy support schemes and increases in benefits also played a role in pushing borrowing to its second-highest April total since records began in 1993.

Reflecting on the figures, Chancellor Jeremy Hunt said, “Debt and borrowing remain too high now – which is why it’s one of our priorities to get debt falling. We’ve taken difficult but necessary decisions to balance the nation’s books, and if we stick to our plan and get our economy growing, then debt is set to fall.”

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 (24 May 2023)

“We have to stay the course”

As widely expected, the Bank of England’s (BoE’s) Monetary Policy Committee (MPC) voted to increase Bank Rate by a quarter of a percentage point to 4.5%, at its meeting last week. Seven members of the committee voted to raise the rate, while two members favoured maintaining Bank Rate at 4.25%.

The twelfth consecutive rise, borrowing costs are now at their highest level since October 2008. The Bank has been raising rates in an attempt to lower inflation, which it now expects to fall more slowly than previously hoped. By the end of 2023, inflation is predicted to sit above 5%, contrary to its February forecast which cited ‘below 4%’ by year end. A resilient labour market and high food prices continue to impact. During a press conference following release of the MPC minutes, Andrew Bailey, BoE Governor, commented, “We have to stay the course to make sure inflation falls all the way back to the 2% target,” before stressing that the BoE was not making any indications about its next move, which would be data dependent.

In welcome news, the central bank lifted its economic outlook for the UK, predicting a recession will be avoided. GDP is expected to expand by 0.25% during 2023, better than the 0.5% contraction previously forecast. Bailey defended the u-turn in the Bank’s growth forecast, saying its “biggest upgrade” ever reflected the rapidly shifting economic landscape, with energy prices falling and economic activity stronger than expected.

Chancellor of the Exchequer Jeremy Hunt said it was good that the BoE is “no longer forecasting recession,” but added, “Today’s interest rate rise will obviously be very disappointing for families with mortgages, but unless we tackle rising prices, the cost-of-living crisis will only carry on – which is why we need to be resolute in sticking to our plan to halve inflation by the end of the year.”

The next MPC meeting is scheduled to conclude on 22 June.

US inflation below 5%

Price rises in the US fell to their lowest point in two years, according to official figures released last week, with milk and new cars driving inflation down to 4.9% in the year to April. This is the tenth consecutive month that price rises have slowed, after having peaked last June at 9.1%.

Meanwhile, US Treasury Secretary Janet Yellen is urging Congress to agree to raise the country’s debt ceiling. Should an agreement to increase the ceiling, which has been raised, extended or revised 78 times since 1960, not be forthcoming, the Federal Government could run out of money by early June.

UK GDP

The UK economy grew by 0.1% between January and March, according to data released by the Office for National Statistics (ONS) on Friday. The figures revealed that the economy contracted by 0.3% in March, as car sales and the retail sector suffered a bad month; other explanations for the slow quarter include strikes, cost-of-living pressures and the wet weather. The economy is still 0.5% smaller than pre-pandemic levels, the ONS said, and performed worse in the first quarter than other major economies, except Germany.

Record number of long-term sick

On Tuesday, the ONS released data that revealed employment edged up to 75.9% in the first three months of 2023. Despite that, the number of people not working due to long-term sickness rose to a record high of 2.55 million.

The rising employment rate was attributed to an increase in part-time employees and self-employed workers, though the unemployment rate also rose slightly to 3.9%. Meanwhile, vacancies fell on the quarter for the tenth consecutive period.

Neil Carberry, Chief Executive at the Recruitment and Employment Confederation, commented, “These figures show some gentle progress on bringing people back to the labour market, but we should be concerned by the high number of people who are economically inactive because they are sick, and progress on tackling inactivity overall is too slow.”

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 (17 May 2023)

“May has the potential to be a historic month for the hospitality sector, which is set for one of its busiest times in recent memory”

The Coronation of King Charles III was expected to bring an additional £180m to UK hospitality and leisure businesses over the long weekend, according to recent estimates from Barclays. The same report noted that almost three in five UK small and medium-sized businesses (SMEs) expect revenues to increase on a quarterly basis in Q2 2023.

James Hardiman of the British Retail Consortium commented, “Retail sales are usually boosted by large national events. Given the King’s Coronation will be such a historical event, we expect an even larger uptick.”

Alongside other major boosts for hospitality, including the May bank holidays and Eurovision Song Contest, taking place in Liverpool, the Coronation could be part of a bumper month for hospitality, analysts are predicting. Data from UKHospitality released at the start of the month estimated the total boost to the sector could be as high as £1bn.

Kate Nicholls, Chief Executive of UKHospitality, commented, “May has the potential to be a historic month for the hospitality sector, which is set for one of its busiest times in recent memory. We know the British public turn out in their droves for big events and we expect the Coronation and Eurovision to be no different.”

Housing market shows recovery signs

Last Wednesday, data from Nationwide showed that UK house prices rose by 0.5% in April, an unexpected jump after seven consecutive monthly falls. As a result, the annual rate of house price growth was -2.7% in the month, a slight improvement from -3.1% in March.

Amid predictions of falling inflation, signs of an improving economic outlook and less pessimistic consumer sentiment, analysts are now discussing the possibility of ‘a modest recovery in housing market activity’.

Commenting on the figures, Robert Gardner, Nationwide’s Chief Economist, said, “While annual house price growth remained negative in April at -2.7%, there were tentative signs of a recovery with prices rising by 0.5% during the month (after taking account of seasonal effects). April’s monthly increase follows seven consecutive declines and leaves prices 4% below their August 2022 peak.”

FCA stock listing rules

The Financial Conduct Authority (FCA) announced plans last week to simplify rules relating to stock market listings, a response to recent high-profile businesses opting to list in the US instead.

Hoping to attract more companies to list shares on UK stock markets, the FCA said its proposals would simplify regulations and help make the UK ‘more competitive’ with stock markets abroad. The proposals include replacing two listing categories with one and removing mandatory shareholder votes on transactions such as acquisitions.

Nikhil Rathi, Chief Executive of the FCA, said the new rules would “make it easier for companies to join the market quicker.” Others have raised concerns about the erosion of shareholders’ rights.

Retail sales flat

UK retail sales growth flatlined in April, according to the BRC-KPMG Retail Sales Monitor, which was updated on Tuesday. Total retail sales rose by 5.1%, repeating the rate of growth recorded a month earlier.

Food sales drove overall growth, with an increase of 9.8% on a total basis and 10% on a like-for-like basis over the three months to April. Non-food sales increased by 1.2% (total) and 0.8% (like-for-like), with in-store non-food sales rising by 3.9% (total) and 3.3% (like-for-like), compared to a 3.6% decline in online non-food sales.

After inflation fell by less than expected last month, supermarket chain Sainsbury’s announced separately on Tuesday that it was reducing the prices of staple items such as bread and butter.

Here to help

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

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

All details are correct at time of writing (10 May 2023)

“People shortages are a massive issue and employers can see little sign of improvement”

The latest quarterly Recruitment Outlook from the British Chambers of Commerce (BCC) has highlighted that challenges remain for businesses surrounding the hiring of new staff. The survey of over 5,000 UK companies of differing sizes, from various sectors, who are attempting to recruit, has shown that firms in the manufacturing and hospitality sectors are most likely to report difficulties (83%), followed by construction and engineering firms (81%) and professional services; and public, education, health sector (79%).

With 59% of businesses actively attempting to recruit staff, Head of People Policy at the BCC, Jane Gratton commented on the survey findings, “People shortages are a massive issue and employers can see little sign of improvement. The high number of unfilled job vacancies is damaging businesses and the economy. Firms are struggling to fulfil order books and turning down new work.” 

Labour costs are an inflationary pressure for 67% of survey respondents, while 66% are concerned about energy costs. Cost pressures are weighing on training investment, with just 27% of surveyed firms reporting an increase in training spend in Q1, Gratton added, “While investment in training is part of the solution, it is being held back by rising overall cost pressures and a lack of time and resource at firms to mentor and support new recruits.”

US economic growth slows

The latest data from the Bureau of Economic Analysis has shown that the US economy grew by 1.1% in Q1, weaker than analyst expectations of 2% and down from a rate of 2.6% in Q4 2022. This lower than anticipated level of growth was supported by consumer spending. Interest rate rises are also impacting economic growth stateside. The labour market is resilient, with data showing moderate employment growth recorded in March and a historically low unemployment rate. This news comes after President Biden announced he will run for re-election in 2024. Mr Biden, already the oldest US President in history, enters the race with a low national approval rating, at just 43%.

Rents hit new high

A shortage of available properties has pushed average rents to new highs according to new stats from Rightmove. Outside the capital, average monthly rentals are now £1,190, rising to £2,500 in London. Average rents for properties outside the capital have risen for 13 consecutive quarters. Lack of property coming on to the market has created fierce competition among prospective tenants, but the property website has pointed to signs that more properties are becoming available, with the gap between the number of tenants seeking properties and homes available to rent beginning to narrow.

Car production looking positive

Good news for UK car production came last week, as the Society of Motor Manufacturers and Traders (SMMT) announced a second consecutive monthly gain in output, recording a 6.1% year-on-year rise in March. Car production was up 6.0% in Q1 as the global shortage of semiconductors began to ease. Exports supported overall production, which increased by 6.6% in Q1, representing nearly eight in 10 cars manufactured. The largest number of exported vehicles were shipped to the EU.

The trend for hybrid, plug-in hybrid and battery electric vehicles is set to continue. Production of these vehicles surged 75% in March, and many new products are in the pipeline, with over 20 models of electric vehicles set for UK production by 2025.

Coronation boost

Forecasters have predicted that the extra bank holiday for King Charles III’s Coronation will create an additional £2.6bn for the hospitality industry through consumer spending in UK restaurants, pubs and bars. Reservation platform SevenRooms is expecting an average spend of £88.51 per head over the long weekend, with 29 million people set to flock to hospitality venues.

SevenRooms Managing Director (International) Danilo Mangano, commented, “It is clear that people are keen to celebrate the Coronation by taking full advantage of the additional bank holiday in May this year. While we’re seeing a general trend towards consumers focusing on the quality of their hospitality experiences amid the cost of living crisis, the Coronation is giving them an excuse to enjoy themselves. They’re also willing to spend more on unique and out-of-the-box experiences which are being offered by many venues across the UK to celebrate this momentous occasion.”  

Here to help

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

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

All details are correct at time of writing (3 May 2023)