For anyone wishing for a quiet start to 2022 in the financial markets, they would have been sorely disappointed.
Amongst other things, the markets have been hit by uncertainties surrounding a possible Russian invasion of Ukraine, and the ongoing inflationary pressures that are seen here and around the world.
In the UK
Despite global equities struggling throughout the month, the UK was one of the strongest performers as the traditional sectors (energy, financials and industrials) rallied. During January, the FTSE 100 Index increased by 1.1%.
The UK’s consumer price inflation shows no sign of falling away. In fact, in December the index rose from 5.1% to 5.4%. As I am sure you are aware, these inflationary pressures are fuelled by higher prices for energy and food. There seems to be no rest in sight, with energy bills set to increase further and talk of the index breaching the 7% mark in the spring.
The International Monetary Fund (IMF) downgraded its forecast from 5% to 4.7% for UK economic growth in 2022. This was in large part due to the impact that they believe supply constraints and the inflationary pressures will have on households in the UK. Despite this, the UK’s forecast remains the highest amongst the G7 economies. During November, the UK economy grew by 0.9%, which actually meant it rose above pre-Covid levels for the first time. Of course, during December we saw the emergence of the Omicron variant and the Government’s Plan B measures, all of which I am sure will have an impact on December’s figures.
The IMF announced that global economic growth is expected to fall to 4.4% in 2022, from 5.9% in 2021. Much the same as the UK, they cite the disruption in supply chains, inflationary pressures caused by higher energy prices and ever-increasing wage demands. In regards to the US economy, they cut their forecast for 2022 from 5.2% to 4%. For China, the reduction in their forecast went down to 4.8% from the previous figure of 5.6%.
As we have seen in the UK already, the Federal Reserve (Fed) in the US has strongly hinted at a tightening of monetary policy in the near future. This could see the Fed increase their key interest rate in the coming months.
The US saw their consumer prices index hit an annualised rate of 7% in December, which was the fastest growth seen since June 1982. The increase was largely fuelled by higher costs for food, housing and cars. During January, the Dow Jones Industrial Average Index saw a fall of 3.3%.
Closer to home, the eurozone ended 2021 with a 5.2% rise in their economy as a whole. However, it is not so different in Europe, where the growth rate was struggling towards the end of the year. Similar issues with increasing inflationary pressures, the impact of Omicron and supply chain issues all come to the fore.
The rate of inflation in the eurozone increased to 5% during December, for the same reasons as with the UK, in large part due to the impact of energy costs.
The European Central Bank (ECB) still sees the inflationary pressures as temporary and expects them to ease during the course of 2022. While, the German Dax Index fell by 2.6% during January.
As we see the volatility in the investment markets, we fall back on our mantra for investment clients - to provide long-term growth in portfolios that match their appetite for investment risk. This means, that the short-term losses that may be being seen should be outweighed by the longer-term gains of the recommended portfolios.
As always, if you would like to discuss any aspect of your financial affairs, please do contact us and we will be happy to help.
Who should you contact for more information?
Director Richard Brazier
Financial Adviser Amanda Beacon
Senior Consultant Graham Smithson