{"id":4793,"date":"2022-03-02T09:01:44","date_gmt":"2022-03-02T09:01:44","guid":{"rendered":"https:\/\/new.contentdeployment.co.uk\/tomd\/?p=4793"},"modified":"2022-03-02T13:03:48","modified_gmt":"2022-03-02T13:03:48","slug":"economic-review-february-2022","status":"publish","type":"post","link":"https:\/\/new.contentdeployment.co.uk\/tomd\/2022\/03\/02\/economic-review-february-2022\/","title":{"rendered":"Economic Review February 2022"},"content":{"rendered":"
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Interest rates rise again<\/strong><\/p>\n<\/div>\n\n

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In February, the Bank of England\u2019s Monetary Policy Committee (MPC) announced\nan increase in its main interest rate for the second meeting in a row as the\nBank continues to grapple with a rapid rise in the cost of living.<\/strong><\/p>\n<\/div>\n\n

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At its latest meeting held in early\nFebruary, the MPC sanctioned a quarter of a percentage point rate rise taking\nBank Rate to 0.5%. In what was a surprise split decision, however, four of the\nnine-member committee voted for a larger hike, seeking to raise rates by half a\npercentage point.  <\/p>\n<\/div>\n\n

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The decision to increase rates is\ndesigned to contain the country\u2019s spiralling rate of inflation, which the Bank\nnow expects to peak at around 7.25% in April. This would represent the fastest\nrate of consumer price growth since 1991 and would leave inflation\nsignificantly above the Bank’s 2% target level.<\/p>\n<\/div>\n\n

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Data subsequently released by the Office\nfor National Statistics (ONS) showed that inflation, as measured by the\nConsumer Prices Index, rose to 5.5% in the 12 months to January, putting the\ncost of living at a near 30-year high. This figure was above most predictions\nin a Reuters poll of economists, with the consensus suggesting the rate would\nhold steady at the previous month\u2019s level of 5.4%.<\/p>\n<\/div>\n\n

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The latest inflation statistics appear to\nhave reinforced the chances of a third consecutive rate rise at the conclusion\nof the MPC\u2019s next meeting on 17 March. The minutes from February\u2019s meeting\nacknowledged that the Bank expects \u2018further\nmodest tightening in monetary policy\u2019<\/em> to be appropriate \u2018in the coming months\u2019<\/em> and, according to\na Reuters poll, most economists now predict a quarter percentage point rise in\nMarch. Furthermore, almost half of respondents also forecast a similar hike at\nMay\u2019s meeting.<\/p>\n<\/div>\n\n

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Signs of economic resurgence <\/strong><\/p>\n<\/div>\n\n

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The latest gross domestic product (GDP)\nstatistics show the UK economy suffered a smaller than expected economic hit in\nDecember while more recent survey evidence points to a sharp acceleration in\ngrowth during February.<\/strong><\/p>\n<\/div>\n\n

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Data released last month by ONS revealed\nthat UK economic output fell by 0.2% in December as people increasingly worked\nfrom home and avoided Christmas socialising due to the spread of the Omicron\nvariant. This contraction, however, was less severe than many had feared, with\na Reuters poll of economists having predicted a 0.6% monthly fall. <\/p>\n<\/div>\n\n

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Despite December\u2019s decline, GDP data\ncovering the whole of last year showed the UK economy experienced a sharp\nrebound in 2021, following the dramatic pandemic-induced collapse in output\nrecorded during the previous year. In total, the economy grew by 7.5% across\n2021, the UK\u2019s largest annual rate of growth since 1941.<\/p>\n<\/div>\n\n

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More recent survey data also suggests\nthere has been a swift rebound in economic activity following the disruption\ncaused by Omicron at the turn of the year. The preliminary headline reading of\nthe closely monitored IHS Markit\/CIPS composite Purchasing Managers\u2019 Index, for\ninstance, rose to 60.2 in February from 54.2 in January. <\/p>\n<\/div>\n\n

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This represents the fastest pace of\ngrowth in private sector output since last June, with a strong recovery in\nconsumer spending on travel, leisure and entertainment fuelling the pickup in\nactivity. IHS Markit\u2019s Chief Business Economist Chris Williamson said the data\npointed to a \u201cresurgent economy in February\u201d <\/em>as COVID containment measures were relaxed.<\/em><\/p>\n<\/div>\n\n

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Mr Williamson\ndid though add a note of caution, saying\nthat \u201cindications of a growing plight for\nmanufacturers\u201d <\/em>needed to be watched. He added, \u201cGiven the rising cost of\nliving, higher energy prices and increased uncertainty caused by the escalating\ncrisis in Ukraine, downside risks to the demand outlook have risen.\u201d <\/em><\/p>\n<\/div>\n\n

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Markets <\/strong>(Data\ncompiled by TOMD)<\/strong><\/p>\n<\/div>\n\n

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The Russian invasion of Ukraine has understandably\nimpacted global markets. Due\nto the uncertain nature of the fast-evolving situation, global markets\ninitially reacted with many stocks moving into <\/strong>the red and the oil\nprice pushing beyond the $100 milestone as supply concerns intensified. <\/strong><\/p>\n<\/div>\n\n

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Markets reacted\naccordingly on the last trading day of the month following news that Vladimir\nPutin had placed the nuclear deterrent on high alert the previous day. A raft of\neconomic sanctions against Russia are being imposed, including a\nmove designed to cut off Moscow’s major financial institutions from Western\nmarkets. Chancellor Rishi Sunak said the sanctions “demonstrate\nour steadfast resolve in imposing the highest costs on Russia and to cut her\noff from the international financial system so long as this conflict\npersists.”<\/em><\/strong><\/p>\n<\/div>\n\n

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At the\nend of February, major global markets largely closed in negative territory as\ninvestors pensively monitored developments. In the UK, the FTSE 100 closed the\nmonth down 0.08% on 7,458.25, the FTSE 250 and AIM also both lost ground to\nclose the month on 21,081.05 and 1,040.36, losses of 3.86% and 4.99%\nrespectively. <\/p>\n<\/div>\n\n

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In Japan, the Nikkei 225 ended\nthe month on 26,526.82, down 1.76%, and the Euro Stoxx 50 closed February down\n6.00% on 3,924.23. Stateside, the Dow Jones closed\nFebruary down 3.53%, while the NASDAQ closed down 3.43%.<\/p>\n<\/div>\n\n

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On the foreign exchanges, sterling closed the month at $1.34 against the\nUS dollar. The euro closed at \u20ac1.19 against sterling and at $1.12 against the\nUS dollar.<\/p>\n<\/div>\n\n

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The oil price moderated at month end with Brent Crude closing the month trading at around $98 a barrel, a gain of over 9%. Investors flocked to gold, which is currently trading at around $1,903 a troy ounce, a gain of over 6% on the month.<\/p>\n<\/div>\n\n

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Pay levels fall in real terms<\/strong><\/p>\n<\/div>\n\n

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While the latest set of earnings statistics did report relatively\nstrong growth in nominal wage levels, the data also showed that pay growth is\nnow lagging the rapidly rising cost of living.<\/strong><\/p>\n<\/div>\n\n

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ONS figures released last month showed\nthat average weekly earnings, excluding bonuses, rose at an annual rate of 3.7%\nin the final quarter of last year. This exceeded market expectations and was\nalso higher than Bank of England forecasts.<\/p>\n<\/div>\n\n

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However, although the rate remains\nrelatively high in comparison to levels witnessed over the last decade, pay\ngrowth is now failing to keep up with the spiralling rate of inflation. Indeed,\nin real terms, regular earnings fell by 0.8% compared to Q4 2020. <\/p>\n<\/div>\n\n

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In early February, after announcing the\nlatest interest rate rise, Bank of England Governor Andrew Bailey called on\nworkers to rein in pay demands or risk a wage-inflation spiral. The tight\nlabour market, however, means employers are increasingly having to offer higher\nsalaries to retain existing workers and attract new staff. Early ONS estimates\nsuggest these pressures are driving wage growth, with median earnings for\nworkers on payrolls in January 6.3% higher than the same month last year.<\/p>\n<\/div>\n\n

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Government debt costs rising<\/strong><\/p>\n<\/div>\n\n

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The latest public sector finance statistics show borrowing remains\nbelow forecast, although rising inflation is pushing up the cost of servicing government\ndebt.<\/strong><\/p>\n<\/div>\n\n

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January is typically a strong month for\npublic finances due to seasonal inflows of Income Tax and this year ONS data\nrevealed a \u00a32.9bn surplus. While this was a distinct improvement on last year\u2019s\n\u00a32.5bn deficit, it was below market expectations and \u00a37bn less than January\n2020\u2019s pre-pandemic surplus.<\/p>\n<\/div>\n\n

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While year-to-date borrowing remains\nsignificantly ahead of Office for Budget Responsibility forecasts prepared for\nthe last Budget, higher inflation has started to push up interest payments via\nits impact on index-linked debt. Economists expect this to limit the\nChancellor\u2019s room for manoeuvre when he delivers a fiscal update on 23 March.<\/p>\n<\/div>\n\n

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Isabel Stockton, a Research Economist at\nthe Institute for Fiscal Studies, commented, \u201cBorrowing remains likely to\ncome in below that forecast in the Budget. This will doubtless be good news for\nthe Chancellor as he prepares for his Spring Statement. But borrowing still\nremains high by historical standards and while he is currently meeting his\nfiscal targets, Mr Sunak has left himself with very little wriggle room.\u201d<\/em> <\/p>\n<\/div>\n\n

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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.<\/strong><\/p>\n<\/div>","protected":false},"excerpt":{"rendered":"

Interest rates rise again In February, the Bank of England\u2019s Monetary Policy Committee (MPC) announced an increase in its main interest rate for the second meeting in a row as the Bank continues to grapple with a rapid rise in the cost of living. At its latest meeting held in early February, the MPC sanctioned […]<\/p>\n","protected":false},"author":12,"featured_media":4794,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":[],"categories":[32,34],"tags":[],"hd_content_source":[],"_links":{"self":[{"href":"https:\/\/new.contentdeployment.co.uk\/tomd\/wp-json\/wp\/v2\/posts\/4793"}],"collection":[{"href":"https:\/\/new.contentdeployment.co.uk\/tomd\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/new.contentdeployment.co.uk\/tomd\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/new.contentdeployment.co.uk\/tomd\/wp-json\/wp\/v2\/users\/12"}],"replies":[{"embeddable":true,"href":"https:\/\/new.contentdeployment.co.uk\/tomd\/wp-json\/wp\/v2\/comments?post=4793"}],"version-history":[{"count":4,"href":"https:\/\/new.contentdeployment.co.uk\/tomd\/wp-json\/wp\/v2\/posts\/4793\/revisions"}],"predecessor-version":[{"id":4847,"href":"https:\/\/new.contentdeployment.co.uk\/tomd\/wp-json\/wp\/v2\/posts\/4793\/revisions\/4847"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/new.contentdeployment.co.uk\/tomd\/wp-json\/wp\/v2\/media\/4794"}],"wp:attachment":[{"href":"https:\/\/new.contentdeployment.co.uk\/tomd\/wp-json\/wp\/v2\/media?parent=4793"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/new.contentdeployment.co.uk\/tomd\/wp-json\/wp\/v2\/categories?post=4793"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/new.contentdeployment.co.uk\/tomd\/wp-json\/wp\/v2\/tags?post=4793"},{"taxonomy":"hd_content_source","embeddable":true,"href":"https:\/\/new.contentdeployment.co.uk\/tomd\/wp-json\/wp\/v2\/hd_content_source?post=4793"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}