{"id":6320,"date":"2022-06-01T10:44:23","date_gmt":"2022-06-01T09:44:23","guid":{"rendered":"https:\/\/new.contentdeployment.co.uk\/tomd\/?p=6320"},"modified":"2022-06-01T11:48:21","modified_gmt":"2022-06-01T10:48:21","slug":"economic-review-may-2022","status":"publish","type":"post","link":"https:\/\/new.contentdeployment.co.uk\/tomd\/2022\/06\/01\/economic-review-may-2022\/","title":{"rendered":"Economic Review – May 2022"},"content":{"rendered":"
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Bank warns of\ndeteriorating outlook<\/strong><\/p>\n<\/div>\n\n

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The Bank of England\n(BoE) has warned that the UK faces a “sharp\neconomic slowdown”<\/em> in the coming months as it continues to raise\ninterest rates in a bid to dampen rapidly rising prices.<\/strong><\/p>\n<\/div>\n\n

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Following\nits early-May meeting, the BoE\u2019s nine-member Monetary Policy Committee (MPC)\nvoted by a 6-3 majority to increase the Bank Rate from 0.75% to 1.0%, with the\nthree dissenting voices each calling for a bigger hike to 1.25%. This was the\nfourth successive meeting that the MPC had raised rates, taking them to their\nhighest level since 2009. <\/p>\n<\/div>\n\n

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Central\nbanks around the world are currently scrambling to cope with surging inflation\nwhich began after the post-pandemic reopening of the global economy and has\ncontinued to spiral following Russia\u2019s invasion of Ukraine. Policymakers,\nhowever, are also trying to avoid sending their economies into a slump, which\nis creating a policy dilemma. <\/p>\n<\/div>\n\n

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Speaking\nafter the MPC announcement, BoE governor Andrew Bailey admitted, \u201cWe are in a very difficult position.\u201d<\/em> He\nadded, \u201cWe’re walking a very narrow path\nbetween inflation on the one side, which is much higher than we want it to be,\nand on the other side very big external shocks which are causing a big loss of\nreal income for people and businesses in this country.\u201d<\/em> Mr Bailey went on\nto warn of a \u201cmaterial deterioration in\nthe outlook\u201d<\/em> for growth. <\/p>\n<\/div>\n\n

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While\nfalling short of predicting a technical recession \u2013 defined as the economy\nshrinking in two consecutive quarters \u2013 the BoE is now forecasting a decline in\ngrowth across the final three months of this year, with the economy then\ncontracting by 0.25% in 2023. Minutes from the May MPC meeting though still\npoint to further rate rises \u2018in the\ncoming months<\/em>,\u2019 with BoE Chief Economist Huw Pill recently warning \u201ctightening still has further to run.\u201d<\/em> <\/p>\n<\/div>\n\n

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Cost\nof Living Support package<\/strong><\/strong><\/p>\n<\/div>\n\n

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After\nfacing mounting pressure, Chancellor Rishi Sunak has unveiled a further package\nof measures designed to ease the impact of soaring prices on household\nfinances.<\/strong><\/p>\n<\/div>\n\n

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The\nannouncement, made in the Commons on 26 May, was the Chancellor\u2019s second\nemergency policy intervention of the year and came days after energy regulator\nOfgem said its gas and electricity price cap looks set to rise by 40% in\nOctober. The move would see the average household energy bill rise by a further\n\u00a3800 a year to \u00a32,800, prompting Ofgem to warn that the number of people living\nin fuel poverty could double to 12 million.<\/p>\n<\/div>\n\n

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Mr\nSunak said the new package offered \u201csignificant\nsupport<\/em> for the British people\u201d<\/em>\nwith every household set to receive an energy bill discount of \u00a3400 in October,\nwith extra financial help targeted at poorer households, pensioners and the\ndisabled. In total, the Chancellor said the combined measures were worth \u00a315bn,\ntaking the overall amount of government support pledged this year to around\n\u00a337bn. <\/p>\n<\/div>\n\n

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The\nChancellor also announced that the cost of the support package will be partly\noffset by a \u201ctemporary and targeted\nenergy profits levy\u201d<\/em> on oil and gas firms which will see the tax rate on\nNorth Sea profits rise from 40% to 65%. This temporary increase is expected to\nraise \u00a35bn for the exchequer this year but will be phased out when oil and gas\nprices return to normal levels.<\/p>\n<\/div>\n\n

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Responding to the announcement, Institute for\nFiscal Studies Director Paul Johnson said, \u201cRishi Sunak has announced a\ngenuinely big package of support. On average the poorest households will now be\napproximately compensated for the rising cost of living this year.\u201d <\/em>However,\nMr Johnson also suggested that, if energy prices remain high or rise further, \u201cit may turn out hard to ensure these\nchanges are genuinely temporary.\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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At the end of May, EU leaders\nmoved toward an agreement in principle to ban 90% of Russian oil imports by the\nend of the year, pushing the price of Brent Crude higher. This benefited the\nblue-chip FTSE 100 as energy giants ventured into positive territory on the\nnews. <\/strong><\/p>\n<\/div>\n\n

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In addition, one of the indices largest stocks, consumer goods\ngiant Unilever, jumped following news that activist investor Nelson Peltz was\nappointed to the board, heightening expectations of an overhaul at the company.In the UK, the FTSE 100 closed May\non 7,607.66, a gain of 0.84%, while the FTSE 250 and AIM recorded monthly losses\nof 1.40% and 4.55% respectively. In Japan, the Nikkei 225 ended May on 27,279.80, up\n1.61%, and the Euro Stoxx 50 closed the month down 0.36% on 3,789.21.<\/p>\n<\/div>\n\n

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A favourable batch of\nquarterly earnings and signs that recent economic data prices were peaking\nhelped buoy investor sentiment in the US during the month. Following the\nMemorial Day holiday, President Biden and Fed Chair Jerome Powell met to\ndiscuss containment measures to combat rising consumer prices, supply chain disruptions\nand soaring energy costs, which are weighing heavily on the economy and\nmarkets. The Dow closed May up just 0.04%,\nwhile the NASDAQ finished down 2.05%. <\/p>\n<\/div>\n\n

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On the foreign exchanges, sterling closed the month at $1.26\nagainst the US dollar. The euro closed at \u20ac1.17 against sterling and at $1.07\nagainst the US dollar.<\/p>\n<\/div>\n\n

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Brent Crude closed the month trading at around $118 a barrel, a gain of 9.31%. Gold is currently trading at around $1,854 a troy ounce, a loss of 3.19% on the month.<\/p>\n<\/div>\n\n

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Inflation hits\n40-year high<\/strong><\/p>\n<\/div>\n\n

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Official UK inflation\nstatistics show consumer prices are now rising at the fastest rate in four\ndecades driven by the sharp rise in energy bills.<\/strong><\/p>\n<\/div>\n\n

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Data\nreleased last month by the Office for National Statistics (ONS) revealed that\nthe Consumer Prices Index 12-month rate \u2013 which compares prices in the current\nmonth with the same period a year earlier \u2013 rose to 9.0% in April. Although the\nfigure was broadly in line with analysts\u2019 expectations, it does represent a\nconsiderable jump from the previous month\u2019s rate of 7.0%.<\/p>\n<\/div>\n\n

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ONS\nsaid that around three quarters of the rise was due to higher electricity and\ngas bills following Ofgem\u2019s price cap increase which was introduced at the\nbeginning of the month. In addition, higher fuel and food prices driven up by\nthe Ukraine war were also notable upward contributors to April\u2019s figure.<\/p>\n<\/div>\n\n

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Price\npressures look set to continue building over the remainder of this year, with\nthe BoE\u2019s latest forecast suggesting inflation will average \u2018slightly over 10%\u2019<\/em> at its peak during\nthe final quarter of 2022. The bulk of this anticipated further increase will\nbe due to higher household energy bills from October as a result of the energy\nregulator\u2019s next price cap review. <\/p>\n<\/div>\n\n

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Job\nvacancies outpacing unemployment<\/strong><\/p>\n<\/div>\n\n

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Although the latest\nbatch of employment statistics shows vacancies currently exceed the number of\nunemployed people in the UK, there are signs that the jobs market may be\ncooling a little.<\/strong><\/p>\n<\/div>\n\n

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Figures\nreleased last month by ONS showed the unemployment rate fell to 3.7% between\nJanuary and March, its lowest level in almost 50 years. There was also another\nrise in vacancies which hit a fresh high of 1.3 million; as a result, the\nnumber of people out of work is now less than available job openings for the\nfirst time since records began.<\/p>\n<\/div>\n\n

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The\ndata also revealed that the number of people changing jobs hit a record high\nwhich ONS said was \u2018driven by\nresignations rather than dismissals<\/em>.\u2019 Overall, however, ONS did say the\nlatest release painted \u2018a mixed picture\u2019<\/em>\nwith total employment, although up on the quarter, still below its pre-pandemic\nlevel.<\/p>\n<\/div>\n\n

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Survey\nevidence also suggests the labour market may be starting to cool. The latest\npermanent staff placements index from KPMG and the Recruitment and Employment\nConfederation, for instance, fell to 59.8 in April. While any reading above 50\nstill implies growth, this was the fifth consecutive monthly decline and the\nlowest figure since March 2021.<\/p>\n<\/div>\n\n

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It is important to take professional advice before making any\ndecision relating to your personal finances. Information within this document\nis based on our current understanding and can be subject to change without notice\nand the accuracy and completeness of the information cannot be guaranteed. It\ndoes not provide individual tailored investment advice and is for guidance\nonly. Some rules may vary in different parts of the UK. We cannot assume legal\nliability for any errors or omissions it might contain. Levels and bases of,\nand reliefs from, taxation are those currently applying or proposed and are\nsubject to change; their value depends on the individual circumstances of the\ninvestor. No part of this document may be reproduced in any manner without\nprior permission.<\/strong><\/p>\n<\/div>","protected":false},"excerpt":{"rendered":"

Bank warns of deteriorating outlook The Bank of England (BoE) has warned that the UK faces a “sharp economic slowdown” in the coming months as it continues to raise interest rates in a bid to dampen rapidly rising prices. Following its early-May meeting, the BoE\u2019s nine-member Monetary Policy Committee (MPC) voted by a 6-3 majority […]<\/p>\n","protected":false},"author":3,"featured_media":6325,"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\/6320"}],"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\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/new.contentdeployment.co.uk\/tomd\/wp-json\/wp\/v2\/comments?post=6320"}],"version-history":[{"count":2,"href":"https:\/\/new.contentdeployment.co.uk\/tomd\/wp-json\/wp\/v2\/posts\/6320\/revisions"}],"predecessor-version":[{"id":6326,"href":"https:\/\/new.contentdeployment.co.uk\/tomd\/wp-json\/wp\/v2\/posts\/6320\/revisions\/6326"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/new.contentdeployment.co.uk\/tomd\/wp-json\/wp\/v2\/media\/6325"}],"wp:attachment":[{"href":"https:\/\/new.contentdeployment.co.uk\/tomd\/wp-json\/wp\/v2\/media?parent=6320"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/new.contentdeployment.co.uk\/tomd\/wp-json\/wp\/v2\/categories?post=6320"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/new.contentdeployment.co.uk\/tomd\/wp-json\/wp\/v2\/tags?post=6320"},{"taxonomy":"hd_content_source","embeddable":true,"href":"https:\/\/new.contentdeployment.co.uk\/tomd\/wp-json\/wp\/v2\/hd_content_source?post=6320"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}