{"id":8291,"date":"2022-10-03T13:22:40","date_gmt":"2022-10-03T12:22:40","guid":{"rendered":"https:\/\/new.contentdeployment.co.uk\/tomd\/2022\/10\/03\/economic-review\/"},"modified":"2022-10-05T14:35:29","modified_gmt":"2022-10-05T13:35:29","slug":"economic-review","status":"publish","type":"post","link":"https:\/\/new.contentdeployment.co.uk\/tomd\/2022\/10\/03\/economic-review\/","title":{"rendered":"Economic Review – September 2022"},"content":{"rendered":"
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Chancellor\u2019s Growth Plan<\/strong><\/p>\n<\/div>\n\n

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In his\nfirst fiscal statement since becoming Chancellor, Kwasi Kwarteng hailed a \u201cnew\napproach for a new era\u201d<\/em> as he unveiled a series of tax cuts and other\nmeasures designed to spur economic growth.<\/strong><\/p>\n<\/div>\n\n

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During a \u2018mini-budget\u2019 delivered on 23\nSeptember, the Chancellor outlined a Growth Plan centred on the biggest package\nof tax cuts in fifty years. As well as reversing April’s National Insurance\nrise and the planned increase in Corporation Tax, Mr Kwarteng also announced Income\nTax and Stamp Duty cuts with the total cost of the package estimated to be\nalmost \u00a345bn by 2027. On 3 October, the Chancellor announced a U-turn on plans to scrap the 45p rate of Income Tax.<\/p>\n<\/div>\n\n

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These plans are set to be funded via a large\nincrease in borrowing, with Treasury estimates suggesting an additional \u00a372bn\nof government borrowing as a result of the Chancellor\u2019s announcement. Paul\nJohnson, Director of the independent Institute for Fiscal Studies, described\nthe plans as a \u201cbig gamble\u201d<\/em> and sterling came under intense pressure\nafter the statement as financial markets gave their verdict on Mr Kwarteng\u2019s\nGrowth Plan.<\/p>\n<\/div>\n\n

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In an unusual intervention, the International\nMonetary Fund (IMF) also openly criticised the Chancellor\u2019s proposals, warning\nthat \u2018large and untargeted fiscal packages\u2019<\/em> were not recommended at a\ntime of \u2018elevated inflation pressures<\/em>.\u2019 The IMF, which works to\nstabilise the global economy, said it was \u2018closely monitoring\u2019<\/em>\ndevelopments in the UK and urged the government to \u2018re-evaluate\u2019<\/em> its\npolicies in the coming weeks.<\/p>\n<\/div>\n\n

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Despite the criticism and market turmoil, the government had insisted the tax cuts outlined in the Growth Plan are the \u2018right plan<\/em>.\u2019 The Treasury has also now announced a date when the Chancellor will set out details of his Medium-Term Fiscal Plan. <\/em>Mr Kwarteng will deliver his next fiscal statement on 23 November and this time it will be accompanied by growth and borrowing forecasts produced by the Office for Budget Responsibility (OBR). <\/p>\n<\/div>\n\n

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Bank under rate hike\npressure<\/strong><\/p>\n<\/div>\n\n

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Despite increasing its benchmark interest rate for the seventh meeting\nin a row, the Bank of England\u2019s (BoE\u2019s) Monetary Policy Committee (MPC) remains\nunder intense pressure to further raise rates.<\/strong><\/strong><\/p>\n<\/div>\n\n

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At its latest meeting, the MPC voted by a 5-4\nmajority to hike the Bank Rate by 0.5 percentage points to 2.25%. Among the\ndissenting voices, three were in favour of raising rates by a larger amount of\n0.75 percentage points, while the other would have preferred a smaller\nquarter-point rise.<\/strong><\/p>\n<\/div>\n\n

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When announcing its decision on 22 September,\nthe MPC\nonce again expressed a readiness to implement further rate rises\nas required. Specifically, the minutes to the meeting\nstated that, \u2018Should the outlook suggest more persistent inflationary\npressures, including from stronger demand, the Committee will respond\nforcefully, as necessary.\u2019<\/em><\/p>\n<\/div>\n\n

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The\nMPC\u2019s next policy announcement is scheduled for 3 November, but some analysts have warned the Bank may need to act sooner following\nthe sharp decline in the value of sterling in the aftermath of the Growth Plan.\nOn 26 September, the BoE responded to this speculation by saying it \u2018will\nnot hesitate\u2019<\/em> to raise interest rates if needed and that it was monitoring\nmarkets \u2018very closely<\/em>.\u2019<\/p>\n<\/div>\n\n

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Speaking at the International Monetary Policy\nForum the following day, the Bank\u2019s Chief Economist Huw Pill reiterated this\nposition. Mr Pill said he had concluded that \u201cthe combination of fiscal\nannouncements that we’ve seen will act as a stimulus\u201d <\/em>before adding that\nthis will require \u201ca significant monetary policy response<\/em>.\u201d<\/p>\n<\/div>\n\n

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The Bank is clearly under intense pressure to\nact decisively, either before or following the MPC\u2019s next scheduled meeting.\nMoney markets have already fully priced in a one percentage point increase in\nthe Bank Rate to 3.25% at the November meeting and analysts have suggested\nrates could potentially hit 5.5% or even higher by next spring.<\/p>\n<\/div>\n\n

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

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September was a challenging month\nfor global stock markets, which largely closed the month in negative territory\nas global recessionary fears intensified.<\/strong><\/p>\n<\/div>\n\n

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In the\nUK, the Prime Minister and Chancellor met with the OBR on 30 September, in a move widely seen\nas an attempt to reassure financial markets following a challenging week, which\nsaw an abrupt policy\nshift by the BoE to restart bond purchases. <\/p>\n<\/div>\n\n

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Positive data released\nby the Office for National Statistics (ONS) on the last day of the month showed\nUK economic output increased by 0.2% in Q2, revised up from a previous reading\nof -0.1%. European markets responded positively on\nthe last day of Q3. The FTSE 100 edged up by 12.22 points on the final day of trading\nto 6,893.81, the blue-chip index closed the month down over 5%. The\nmidcap-focused FTSE 250 and the AIM registered losses of 9.94% and 8.65% respectively in\nSeptember. The Euro Stoxx 50 closed the month down 5.66%.<\/p>\n<\/div>\n\n

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US stocks recorded another week of losses in a downbeat end\nto the month and quarter. The Dow closed the month down 8.84% on 28,725.51. The tech-heavy Nasdaq closed September on 10,575.62,\ndown 10.50%. In Japan, the Nikkei 225 closed\nSeptember on 25,937.21, down 7.67%.<\/p>\n<\/div>\n\n

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On 30 September, sterling managed a\nrebound, edging back up to the levels seen before the Chancellor unveiled his\nGrowth Plan.<\/p>\n<\/div>\n\n

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On the foreign exchanges, the euro closed at \u20ac1.13 against\nsterling. The US dollar closed the month at $1.11 against sterling and at $0.97\nagainst the euro. <\/p>\n<\/div>\n\n

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Brent Crude closed the month trading at around $85 a barrel, a drop of 10.16%, as recessionary concerns weigh, and the impact on demand is considered. Gold is currently trading at around $1,670 a troy ounce, a loss of 2.57% on the month. <\/p>\n<\/div>\n\n

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UK inflation dips\nslightly<\/strong><\/p>\n<\/div>\n\n

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While the latest official figures did report a small decline in\nconsumer price growth and the government\u2019s energy price cap is set to reduce\nthe anticipated peak, economists still believe inflation could be relatively\nslow to fall back from current elevated levels.<\/strong><\/p>\n<\/div>\n\n

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Data\nreleased last month by ONS revealed that UK\nconsumer price inflation eased for the first time in almost a year. A decline\nin petrol and diesel prices saw the headline rate dip to 9.9% in August, down\nfrom 10.1% in the previous month. <\/p>\n<\/div>\n\n

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The government\u2019s decision to introduce its\nEnergy Price Guarantee has also limited the impact of October\u2019s rise in\nhousehold energy bills. The decision means typical bills will now rise by\naround 25% rather than 80% and, as a result, will thereby reduce the\nanticipated peak in the rate of inflation.<\/p>\n<\/div>\n\n

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According to updated forecasts released by the\nBoE, inflation is now expected to reach a high of just under 11% in October,\nsignificantly below the 13% figure predicted prior to the energy price cap\nannouncement. However, the Bank also said it then expects inflation to remain\nabove 10% \u2018over the following few months\u2019<\/em> before it starts to fall back.<\/p>\n<\/div>\n\n

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Signs\nthat jobs boom is fading<\/strong><\/p>\n<\/div>\n\n

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Although the latest\nset of employment statistics did reveal that unemployment fell to its lowest\nlevel since 1974, experts have warned that the UK labour market might be\nstarting to turn.<\/strong><\/p>\n<\/div>\n\n

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Figures\nreleased last month by ONS showed that the unemployment rate across the\nMay\u2013July period dropped to 3.6%, a 0.2 percentage point decrease compared to\nFebruary\u2013April\u2019s figure. The data, however, also showed that the decline was\nmostly due to a fall in the size of the workforce, with the number of people no\nlonger looking for work hitting a five-year high.  <\/p>\n<\/div>\n\n

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The\nlatest update also revealed a fall in both the employment rate and job\nvacancies. The employment rate in the three months to July slipped to 75.4%,\n0.2 percentage points lower than in the previous three-month period, while the\ntotal number of job vacancies, although still historically high, fell by 34,000\nduring the June\u2013August period, the largest decline in two years.<\/p>\n<\/div>\n\n

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Survey\nevidence released last month by the Recruitment and Employment Confederation\n(REC) also highlighted a slowdown in hiring, reflecting greater economic\nuncertainty, rising costs and candidate shortages. Commenting on the findings,\nREC Chief Executive Neil Carberry suggested \u201cthe post-pandemic jobs rush is\nnow abating.\u201d<\/em><\/p>\n<\/div>\n\n

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It\nis important to take professional advice before making any decision relating to\nyour personal finances. Information within this document is based on our\ncurrent understanding and can be subject to change without notice and the\naccuracy and completeness of the information cannot be guaranteed. It does not\nprovide individual tailored investment advice and is for guidance only. Some\nrules may vary in different parts of the UK. We cannot assume legal liability for\nany errors or omissions it might contain. Levels and bases of, and reliefs\nfrom, taxation are those currently applying or proposed and are subject to\nchange; their value depends on the individual circumstances of the investor. No\npart of this document may be reproduced in any manner without prior permission.<\/strong><\/p>\n<\/div>","protected":false},"excerpt":{"rendered":"

Chancellor\u2019s Growth Plan In his first fiscal statement since becoming Chancellor, Kwasi Kwarteng hailed a \u201cnew approach for a new era\u201d as he unveiled a series of tax cuts and other measures designed to spur economic growth. During a \u2018mini-budget\u2019 delivered on 23 September, the Chancellor outlined a Growth Plan centred on the biggest package […]<\/p>\n","protected":false},"author":12,"featured_media":8293,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":[],"categories":[32,34],"tags":[],"hd_content_source":[116],"_links":{"self":[{"href":"https:\/\/new.contentdeployment.co.uk\/tomd\/wp-json\/wp\/v2\/posts\/8291"}],"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=8291"}],"version-history":[{"count":6,"href":"https:\/\/new.contentdeployment.co.uk\/tomd\/wp-json\/wp\/v2\/posts\/8291\/revisions"}],"predecessor-version":[{"id":8430,"href":"https:\/\/new.contentdeployment.co.uk\/tomd\/wp-json\/wp\/v2\/posts\/8291\/revisions\/8430"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/new.contentdeployment.co.uk\/tomd\/wp-json\/wp\/v2\/media\/8293"}],"wp:attachment":[{"href":"https:\/\/new.contentdeployment.co.uk\/tomd\/wp-json\/wp\/v2\/media?parent=8291"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/new.contentdeployment.co.uk\/tomd\/wp-json\/wp\/v2\/categories?post=8291"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/new.contentdeployment.co.uk\/tomd\/wp-json\/wp\/v2\/tags?post=8291"},{"taxonomy":"hd_content_source","embeddable":true,"href":"https:\/\/new.contentdeployment.co.uk\/tomd\/wp-json\/wp\/v2\/hd_content_source?post=8291"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}