In his annual Mansion House speech, Bank of England (BoE) Governor Andrew Bailey reiterated the importance of reducing inflation, saying: “It is crucial that we see the job through”, but also warned that current rates of price and wage increases are “not consistent” with the BoE’s 2% inflation target.
- CPI inflation eased to 7.9% YoY in June
- The UK economy shrank by 0.1% in May
- Fixed income funds attracted sizeable inflows in June
BoE warns on wages: in his annual Mansion House speech, Bank of England (BoE) Governor Andrew Bailey reiterated the importance of reducing inflation, saying: “It is crucial that we see the job through”, but also warned that current rates of price and wage increases are “not consistent” with the BoE’s 2% inflation target.
“During the second quarter of 2023, UK listed companies issued a total of 66 profit warnings”
Inflation continues to ease: the rate of consumer price inflation in the UK eased from 8.7% year on year in May to 7.9% in June; meanwhile, core inflation slowed from 7.1% in 6.9%. Meanwhile, average UK earnings (excluding bonuses) rose by 7.3% year on year between March and May, but wages fell by 0.8% in real terms. The unemployment rate from 3.8% to 4% over the same period. The FTSE 100 Index rose by 2.2% during July, while the FTSE 250 Index climbed by 3.9%.
UK economy shrinks in May: having grown by 0.2% in April, the UK economy contracted by 0.1% during May: activity was affected by an additional bank holiday for the King’s coronation. The International Monetary Fund expects the UK economy to grow by 0.4% this year and 1% next year. The BoE’s semi-annual Financial Stability Report indicated that the UK economy and financial system had “so far been resilient to interest rate risk”, but maintained that the Financial Policy Committee would remain vigilant.
Profit warnings from UK plc: the UK is experiencing its longest run of consecutive quarterly increases in profit warnings from listed companies since 2008/2009, according to a quarterly study undertaken by EY . During the second quarter of 2023, UK listed companies issued a total of 66 profit warnings. 20% of firms cited higher borrowing costs in their warnings, while 14% highlighted the weaker housing market as a factor. Warnings were particularly concentrated in the construction and retail sectors. EY reported that the number of companies issuing a third profit warning had risen from 31 to 36, eight of which have already delisted.
Positive H1 for retail funds: the first six months of the year saw net retail inflows of just over £6 billion, according to the Investment Association (IA) , which reported sizeable inflows to fixed income sectors against a backdrop of rising interest rates. During June, however, investors withdrew almost £1 billion from funds, as sentiment was undermined by persistent inflationary pressures, higher interest rates, and political uncertainty.
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