TOMD Content Deployment

“Both retailers and their customers are in for hard times ahead”

UK retail sales contracted in May as consumers reduced their spending, according to data released by the Office for National Statistics (ONS) last Friday. As prices continue to rise and the impact of inflation on household finances intensifies, retail sales volumes fell by 0.5% between April and May, marginally better than a 0.7% reduction forecast by a Reuters poll of economists. Primarily driven by a decline in food sales, which dropped 1.6% in the month, supermarket sales fell by 1.5%, while sales of tobacco, alcohol and other drinks dropped by 4%.

Chief Executive of the British Retail Consortium (BRC) Helen Dickinson commented on the findings, “Households reined in spending as the cost-of-living crunch continued to squeeze consumer demand. Many customers are buying down, particularly with food, choosing value-range items where they might previously have bought premium goods.”

She continued, “High-value items, such as furniture and white goods, were also impacted as shoppers reconsidered major purchases during this difficult time. Higher operational and input costs have filtered through to prices, meaning both retailers and their customers are in for hard times ahead.”

Non-food store sales were unchanged in May, while a 2.2% increase in clothing sales in the month was offset by a 2.3% decline in household goods. Interestingly, fuel sales increased by 1.1% in May; Heather Bovill, Deputy Director for Surveys and Economic indicators at ONS, partially attributes this to more hybrid working and a decline in those working exclusively from home, commenting, “More workers returning to the office may have contributed to increased fuel sales this month, while shoppers buying outfits for summer holidays helped boost clothing sales.”

In May, the proportion of online sales reduced (26.6% in May 2022 versus 27.1% in April) but remains substantially higher than the 19.7% recorded in February 2020 prior to the pandemic.

Get spending your old bank notes!

With UK bank notes worth £14bn set to become invalid from 30 September, last week marked the 100-day countdown, prompting the Bank of England (BoE) to issue a reminder. Old-style paper £20 and £50 notes will no longer be considered legal tender or accepted in stores. The BoE estimates there is over £6bn in paper £20 notes and £8bn in old £50 notes still in circulation

The BoE’s Chief Cashier Sarah John commented on the impending deadline, “Changing our banknotes from paper to polymer over recent years has been an important development, because it makes them more difficult to counterfeit, and means they are more durable. The majority of paper banknotes have now been taken out of circulation, but a significant number remain in the economy, so we’re asking you to check if you have any at home. For the next 100 days, these can still be used or deposited at your bank in the normal way.”

Triple lock commitment reiterated

Last week the government reiterated its commitment to apply the State Pension triple lock next year, when questioned about plans for additional measures to help pensioners deal with inflationary pressures. In a written response, Simon Clarke, Chief Secretary to the Treasury confirmed ‘Next year, the triple lock will apply for the State Pension. Subject to the Secretary of State’s review, pensions and other benefits will be uprated by this September’s CPI which, on current forecasts, is likely to be significantly higher than the forecast inflation rate for 2023/24.’

The triple lock commits the government to raise the State Pension every tax year by the higher of 2.5%, average wage growth, or inflation, effectively protecting pensions from losing value due to inflation.

G7 Summit

On Tuesday, the three-day G7 summit in Germany ended with Prime Minister Boris Johnson and fellow world leaders confirming that they would explore further measures, including possible caps on the price of oil and gas, to prevent Russia profiting from its ‘war of aggression’ against Ukraine. Olaf Scholz, German Chancellor and G7 Chair, made the vow at a closing press conference in which he said the group was united and unbreakable, adding, “It is important to stand together for this over the long distance, which will certainly be necessary.” In addition to pledging support for Ukraine, the summit had two further main aims – a joint effort to end world hunger and a renewed commitment to combating climate change. 

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 (29 June 2022)

‘We have the tools and determination we need to reduce inflation and I am confident the Bank will play their part in making that happen’

The Monetary Policy Committee (MPC) voted to raise Bank Rate last week, hiking the rate from 1% to 1.25%, the fifth consecutive rate rise. The MPC voted six to three to raise the rate by 0.25 percentage points, with the members in the minority voting for a 0.5 percentage point rise to 1.5%. Pushing the Bank of England’s (BoE) benchmark rate above 1% for the first time since 2009; the increase was widely expected, with analysts believing another hike was necessary to rein in inflation.

The MPC revised its inflation forecast to ‘slightly’ above 11% in October, an increase on a previous estimate of 10% and the eighth time the Bank has had to alter its predictions. If this estimate of 11% plays out in the coming months, the 2% inflation target will be overshot almost six-fold. The anticipated increase in October reflects higher projected household energy prices following an additional rise in the Ofgem price cap, plus rising food prices and a tight labour market.

Responding to a letter from BoE Chairman Andrew Bailey, Chancellor Rishi Sunak said that he recognised ‘the impact that high inflation has on households and that it is challenging for households up and down the country to meet their living costs, which is why it is imperative to bring inflation back down to target and to keep it anchored there. I welcome that the Bank is prepared to take firm and decisive action to achieve this.’

Referring to a trio of tools; independent monetary policy, fiscal responsibility and supply side reform, the Chancellor concluded, ‘We have the tools and determination we need to reduce inflation and I am confident the Bank will play their part in making that happen.’

Further rate increases are expected this year, with commentary suggesting that investors are pricing in a 3% base rate by year end. This would require three half-point rate increases and a quarter-point increase at the four remaining meetings of 2022. The next MPC meeting is scheduled for 4 August 2022.

Fed approves largest interest rate rise since 1994

Central banks around the world are taking similar steps, including in the US. Across the pond, Federal Reserve officials agreed a 0.75 percentage point rate rise last Wednesday, increasing the Fed’s benchmark federal-funds rate to a range between 1.5% and 1.75%. The largest US interest rate increase in 28 years, the Fed signposted that it would continue lifting rates in 2022 as it strives to tackle surging inflation. The third rate rise since March, more are expected, with the median Fed policymaker indicating interest rates to sit at around 3.4% by the end of 2022.

At a press conference following the two-day meeting, Fed Chairman Jerome Powell described the rate rise as “unusually large,” adding, “It is essential that we bring inflation down… Inflation has obviously surprised to the upside over the past year and further surprises could be in store. We therefore will need to be nimble.”

By choosing to raise rates more aggressively, the Fed is seeking what it calls a ‘soft landing’ which would slow inflation without causing a recession. The next Federal Open Market Committee (FOMC) meeting will be held during the last week of July.

Travel woes

Railway workers kicked off three days of strikes on Tuesday (21^st), with Thursday (23rd) and Saturday (25th) also earmarked, in what is due to be the biggest national rail strikes in 30 years. With only half of Britain’s rail network expected be open on the strike days, with a very limited service, economists expect the strike to cost the nation around £100m.  Kate Nicholls, Chief Executive of UKHospitality, said this is a “huge blow” to businesses already dealing with staff shortages and soaring energy prices, she continued, “Our customers and staff rely heavily on public transport to visit our venues, especially in towns and cities, where recovery is proving most difficult.”

Meanwhile, chaos at UK airports continues, as the aviation industry is still in the process of ramping up staff levels, after many workers were made redundant or changed jobs during the pandemic.

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 (22 June 2022)

The release of the latest Economic Outlook from the Organisation for Economic Co-operation and Development (OECD) last week, highlighted that global GDP is now projected to slow this year to around 3%, remaining at a similar pace next year. This is a downgrade following estimates of 4.5% global growth this year, made last December. Outlining the situation, the OECD deduce ‘The war has set the global economy on a course of slower growth and rising inflation – a situation not seen since the 1970s.’

Aptly entitled ‘The Price of War,’ the report outlines the far-reaching impact of the invasion in Ukraine and its role in triggering a global cost-of-living crisis. Before the war, the global economy was on track for a strong, although uneven, recovery from the pandemic. According to the report, inflation projections currently stand at almost 9% for OECD countries this year, double previous projections. The new projections from the international think tank detail the impact the war is having on inflation, which has already reached 40-year highs in the UK, US and Germany. In fact, data from the US last week pointed to surging levels of inflation, potentially paving the way for a series of aggressive interest rate hikes.

UK GDP is expected to grow by 3.6% this year, before stagnating in 2023. The OECD expect continuing high energy prices, labour and supply shortages to push inflation to a peak of 10% towards the end of the year, reducing to around 4.7% in Q4 2023. In response to the OECD projection for the UK growth forecast, a spokesperson from HM Treasury responded, “While we can’t insulate the UK from global pressures entirely, our economy is in a strong position to deal with these challenges. We have a plan for growth, and we are supporting people with the cost of living.” It is expected that a tight labour market will support consistently low unemployment statistics.

Data from the Office for National Statistics (ONS) released this week showed that UK GDP shrank by 0.3% in April, the first month that all main sectors (manufacturing, construction and services) contributed negatively to GDP since January 2021. The decline was primarily triggered by the reduction of the NHS Test and Trace programme, which fell by 70% in April as tests ceased to be free.

Accelerating the energy transition

In the report, OECD Chief Economist and Deputy Secretary-General, Laurence Boone outlined his thoughts on the need for governments to ‘shift gear’ to speed up the energy transition, ‘Limiting Russia’s ability to finance the war, as is intended by an embargo on Russian oil exports, is essential for speeding up an end to this devastating conflict.’ He continued, ‘The emergency response to a possible energy crisis has turned out to be a stark scramble for alternative sources of fossil fuels and to increase coal use. This can only be temporary as it is the opposite of what the world needs, which is a rapid increase in investment in, and consumption of, cleaner energy.’

Central banks – time to decide

The World Bank has cautioned that a period of high inflation and tepid growth is threatening to ‘derail what is now a precarious recovery,’ citing it would be ‘hard’ for many countries to avoid recession. The warning comes as the European Central Bank has signalled an end to its pandemic-era money-printing programme, paving the way for the first interest rate hike in eleven years. This week the Bank of England and the US Federal Reserve will conclude their latest monetary policy meetings. It’s time to decide whether they too should lift interest rates even higher to tame inflation or resist as the economy slows.

UK housing market records 10.5% annual price growth

The Halifax House Price Index has shown that average house prices have risen 10.5% in the year to May, to a new record of £289,099. Although the eleventh consecutive month of increases, the pace of growth has started to moderate, from the 10.8% (in the year) recorded in April.

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.