December saw the Bank of England announce its ninth consecutive increase in interest rates. The key base rate was raised by 50 basis points to 3.5%, although there were signs of dissent among BoE officials, with two voting for no change and one calling for an increase of 75 basis points.
- The pound fell to US$1.21 against the US dollar
- UK blue chips outperformed mid-caps during 2022
- Retailers expect a poor start to 2023
Inflationary pressures persist: December saw the Bank of England (BoE) announce its ninth consecutive increase in interest rates. The key base rate was raised by 50 basis points to 3.5%, although there were signs of dissent among BoE officials, with two voting for no change and one calling for an increase of 75 basis points. UK inflation moderated in November as energy cost pressures eased slightly. The annualised rate of consumer price inflation declined from 11.1% in October to 10.7%; nevertheless, prices are still rising at their most rapid rate for more than 40 years.
“Prices are still rising at their most rapid rate for more than 40 years”
Share prices fell in December: the FTSE 100 Index and the FTSE 250 Index both fell by 1.6% during December. Over 2022 as a whole, however, their performance was markedly different: the blue-chip FTSE 100 Index edged up by 0.9%, while the FTSE 250 Index – which tends to be more exposed to the domestic UK economy – fell by 19.7%. The pound weakened against the US dollar over 2022 as a whole, falling from US$1.35 to US$1.21. The outlook for sterling remains clouded by expectations of further monetary tightening in the US and the eurozone alongside recession in the UK.
Financial sector set for reform: the Government unveiled plans during the month to reform the UK’s financial regulation. The “Edinburgh Reforms” – a package of more than 30 measures – are designed to support innovation, “unlock investment and turbocharge growth”, and cut red tape in the financial sector. However, some critics believe that the moves could undermine some of the lessons learned from the Global Financial Crisis.
Economic weakness continues: although the UK economy grew by 0.5% during October , its performance over the third quarter of 2022 proved worse than first estimated as inflationary pressures continued to curb activity. The Office for National Statistics reported that the economy contracted by 0.3% during the third quarter, rather than by 0.2%, with falls across the manufacturing sector. The UK economy is now calculated to be 0.8% smaller than it was before the Covid-19 pandemic.
Gloomy outlook for retailers: sales volumes rose at a “moderate pace” during December compared with the same period in 2021, according to the Confederation of British Industry (CBI) . However, the CBI’s survey found that retailers do not expect sales growth to continue into the new year.
To view the series of market updates through December, click here
