Share prices fell in the UK during August as deteriorating news about China’s economy compounded UK investors’ existing concerns over inflation, interest rates, and the outlook for the domestic economy.
- UK rates were raised to 5.25%
- Inflation eased but remained well above the BoE’s 2% target
- UK dividends fell at a headline rate of 12.1% in Q2
Share prices fell in the UK during August as deteriorating news about China’s economy compounded UK investors’ existing concerns over inflation, interest rates, and the outlook for the domestic economy. The FTSE 100 Index fell by 3.4% during August, while the FTSE 250 Index declined by 2.8%.
“Inflation will continue to fall over the coming months” (BoE Governor Andrew Bailey)
UK rates rise again: the Bank of England (BoE) increased its key base rate by 25 basis points to 5.25% during August. This was the Monetary Policy Committee’s 14th consecutive increase . Although inflationary pressures have moderated to some degree – and BoE Governor Andrew Bailey said: “Inflation will continue to fall over the coming months” – UK rates are not believed to have peaked yet. The BoE raised its forecast for UK economic growth in the year to the third quarter from 0.6% to 0.8%. Having contracted by 0.1% in May, partly because of an additional bank holiday, the economy grew by 0.5% in June, boosted by warmer weather.
Inflationary pressures ease slightly: the annualised rate of inflation eased from 7.9% in June to 6.8% in July, curbed by falling energy costs. However, the core rate of inflation remained steady at 6.9%, stoking expectations of further rate increases. Meanwhile, the British Retail Consortium (BRC) reported a decline in shop price inflation from 7.6% in July to 6.9% in August, reaching its lowest level since October 2022. The BRC warned that UK retailers will have to continue to navigate supply chain risks.
Confidence picks up: confidence among UK consumers improved in August, according to a survey undertaken by GfK , although confidence remains in negative territory. Sentiment had deteriorated in July following five straight months of improvement. Meanwhile, Lloyds Bank’s Business Barometer reported that UK business confidence improved during August, reaching its highest level since February 2022.
Dividend growth loses its steam: UK dividend payments rose by 2.9% during the second quarter on an underlying basis but fell by 12.1% on a headline basis, according to Janus Henderson’s Global Dividend Index . Although 80% of listed companies raised or maintained their payouts during the period, overall payments were dampened by dividend cuts in the mining sector.
M&S rejoins the FTSE: in a quarterly review of FTSE UK Index constituents, M&S returned to the FTSE 100 Index, alongside Dechra Pharmaceuticals, Diploma, and Hikma Pharmaceuticals, while Persimmon, Hiscox, abrdn and Johnson Matthey joined the FTSE 250 Index.
To view the series of market updates through August, click here
