Amid growing concerns over inflation and the outlook for the UK economy, the pound dropped to US$1.16 during August, while the yield on the benchmark UK gilt rose to its highest level since early 2014.
- The UK base rate was raised to 1.75%
- UK CPI hit 10.1% YoY
- Consumer confidence continued to deteriorate
Pound under pressure: amid growing concerns over inflation and the outlook for the UK economy, the pound dropped to US$1.16 during August , while the yield on the benchmark UK gilt rose to its highest level since early 2014. Having grown by 0.8% during the first three months of the year, the UK economy is estimated to have contracted by 0.1% during the second quarter. During the month of June, it shrank by 0.6%. The FTSE 100 Index fell by 1.9% during August, while the FTSE 250 Index dropped by 5.5%.
“The UK is set to tip into recession towards the end of 2022”
BoE tightens again: the Bank of England (BoE) imposed a sixth consecutive increase in interest rates during August . BoE policymakers raised the base rate by 0.5 percentage points during August, representing the central bank’s single largest increase since February 1995 . The BoE’s key interest rate now stands at 1.75% - its highest level since 2008. The BoE also warned that the UK is set to tip into recession towards the end of 2022.
CPI reaches 10.1%: consumer price inflation hit double digits for the first time in 40 years during July, rising from 9.4% year on year in June to 10.1%. Looking ahead, inflation is expected to continue its upward trajectory, driven by rising price for food and energy. The BoE expects UK inflation to breach 13% by the end of 2022, and some economists have warned that it could rise significantly higher in 2023. Ofgem – the UK’s energy regulator – announced that the energy price cap will rise from £1,971 a year to £3,549 on 1 October. Further increases are widely expected in 2023.
“A sense of exasperation”: consumer confidence plumbed new depths during August, according to GfK , which reported “a sense of exasperation” amongst consumers faced with soaring prices and bleak economic prospects. Growth in average wages is continuing to lag surging inflation: the Office for National Statistics (ONS) reported that average wages (excluding bonuses) rose by 4.7% in the three months to June – in real terms, this represents a record 3% drop in pay.
Changes to the FTSE: in its quarterly reshuffle, the FTSE 100 Index announced that medtech company ConvaTec, F&C Investment Trust, and Harbour Energy would be joining the blue-chip index, replacing Abrdn, Hikma Pharmaceuticals, and Howden Joinery Group. The changes will take effect from 19 September.
To view the series of market updates through August, click here
