October was a month of political turmoil for the UK and financial markets were plunged into chaos as the Government saw its third Prime Minister and fourth Chancellor of the Exchequer since July.
- The Chancellor reversed planned cuts in income tax
- The Government’s “fiscal announcement” was delayed until 17 November
- Sterling rallied and share prices rebounded
UK in flux: October was a month of political turmoil for the UK and financial markets were plunged into chaos as the Government saw its third Prime Minister and fourth Chancellor of the Exchequer since July. Just after the end of September, the Government rowed back on its plan to abolish the 45% additional rate of income tax following a storm of protest. Then it was “all change” at the Treasury as short-lived Chancellor of the Exchequer Kwasi Kwarteng was replaced by Jeremy Hunt who promptly reversed a planned cut in income tax and reduced the energy price cap from two years to six months. The measures raised hopes that inflationary pressures might prove less pronounced than previously feared. Former Chancellor of the Exchequer Rishi Sunak took over from Liz Truss as Prime Minister, and the Government’s “fiscal announcement”, planned for 31 October , was delayed until 17 November. Share prices stabilised, the pound rallied against the US dollar, and gilt yields subsided . Over October as a whole, the FTSE 100 Index rose by 2.9%, while the FTSE 250 Index climbed by 4.2%.
“Food prices rose by 14.6% over the year to September”
Ratings downgrades: credit ratings agency Moody’s reduced its outlook on the UK economy from “stable” to “negative” during October, citing an unpredictable political backdrop and persistently high inflation. Ratings agency Fitch also revised its outlook from “stable” to “negative”. The UK economy posted an unexpected contraction in August, shrinking by 0.3%.
Hawkish BoE: the cost of living continued to bite in the UK as food prices rose by 14.6% over the year to September and the overall rate of consumer price inflation increased from 9.9% to 10.1% year on year. During October, Governor of the Bank of England Andrew Bailey warned that inflationary pressures could result in a larger-than-expected increase in interest rates.
Profit warnings hit consumer sectors: UK listed companies issued a total of 86 profit warnings during the third quarter of 2022, according to EY’s most recent quarterly analysis . This was two-thirds higher than in the same period in 2021, and the highest third-quarter total since the Global Financial Crisis. 57% of warnings cited rising cost pressures, while 23% quoted labour market problems. Profit warnings were particularly concentrated amongst consumer-related sectors with 11 in the Retailers sector, nine in Travel & Leisure, and seven in Food Producers.
To view the series of market updates through October, click here
