Alongside the unfolding tragedy in Ukraine, the surging cost of living continued to garner headlines in the UK during March. The annualised rate of consumer price inflation rose to a fresh 30-year high of 6.2% in February, and inflationary pressures are set to intensify in April when the energy price cap is increased.
- UK CPI rose to a fresh 30-year high of 6.2% in February
- The BoE increased its base rate to 0.75%
- The Chancellor’s Spring Statement received a lacklustre response
Cost of living continues to surge: alongside the unfolding tragedy in Ukraine, the surging cost of living continued to garner headlines in the UK during March. The annualised rate of consumer price inflation rose to a fresh 30-year high of 6.2% in February, and inflationary pressures are set to intensify in April when the energy price cap is increased. The British Retail Consortium (BRC) warned that rising inflation “remains a significant concern for the economy, squeezing household incomes and increasing cost pressures on retailers”, and reported that shop price inflation had risen from 1.8% in February to 2.1% in March, representing its sharpest increase in more than ten years.
“Inflationary pressures are set to ‘weigh heavily on living standards in the coming 12 months’” (OBR)
Spring Statement fails to deliver for many: inflationary pressures are set to “weigh heavily on living standards in the coming 12 months”, according to the Office for Budget Responsibility (OBR) , which expects real household disposable incomes per person to fall by 2.2% over the coming financial year. As a result, the Chancellor’s Spring Statement was criticised for failing to address the soaring cost of living. His measures included a 5p cut in fuel duty and an increase in the threshold at which people start to pay National Insurance Contributions (NICs) to £12,570. The basic rate of income tax was cut from 20p to 19p, although this cut will not take place until 2024.
BoE tightens again: UK interest rates were raised once again in March, bringing the Bank of England’s (BoE’s) key base rate to 0.75%. Looking ahead, inflation is expected to peak above 8% during 2022. The FTSE 100 Index fell heavily at the start of the month but went on to recoup its losses and ended March 0.8% higher. The FTSE 250 Index underwent a similar journey, rising by 0.4% over the month.
Mining sector drives special dividend payouts in 2021: over 2021 as a whole, UK dividends rose by 44.3% on a headline basis and 21.2% on an underlying basis. Janus Henderson’s quarterly Global Dividend Index found that three-quarters of UK companies raised or maintained their dividend payouts. Headline dividend growth was stoked by record special dividend payouts from the mining sector. In contrast, dividends from the banking sector recovered only to half their pre-pandemic level. nevertheless, UK dividend growth during 2022 is expected to be driven by recovering payouts from the oil and banking sector.
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